It is an exciting day for eFuture, that Chinese business software and services company. It looks like we made a timely call last week, when we advised to buy when it was below $14. We actually have a likely explanation for the timing. 

We mentioned in a previous entry earlier today that there is a considerable amount of shares short, 345K, more than 10% of the total outstanding shares (2.63M). The trend, if anything, is towards a decrease.

We also argued that we hadn’t discovered a fundamental reason to short this company, so most likely it was a play on the Chinese markets. And this also delivers the most likely explanation of what’s going on right now.

The Chinese markets receive guidance from the authorities (we will write about that in our series ‘Managing the Asset Markets?’), and this is what’s behind their spectacular reversal. The Chinese authorities cut tax on share trading, and this had an instant effect.

Shorts in eFuture are, in all likelihood, scrambling for the exit. Another piece of good news is that EFUT has been removed from the naked short list which indicates failures in delivery (see our primer on short attacks), and can indicate manipulation by shorts (especially if it’s on the list for a long time).

Will we get over $17 today? The jury is still out, but it looks pretty good so far.