Yep, big solid base been built. Orderly progress, 1.60 should now be very strong support. Someone was trying to hold it down late yesterday (big volume selling going into the close); then again last night in US trade when it burst through $US6.00, up to $6.20 before selling came back in to try to stop the break and it closed right on $6. Then this morning sellers were unusually active in the open, loading enough into the open to keep it below $1.60 and advertising another 100,000 at $1.60 to make it look heavy.
However, the short sellers as a group are running out of ammo as some of the shorts break ranks and cover. As I've noted before, new gross shorts have dried up on a daily basis (less than 20,000 some days) and net shorts have been falling for more than 3 weeks.
Net shorts now down to 24.48m from a recent high of 25.215m since June 19, a net covering of 735,000. There's a lot more covering to go - some shorters are rumored to hold more than 5m short. They have an interest in keeping it down, but they could well be swamped by the others who have started covering.
The major brokers selling MSB don't have active orders - the business is all going through "the pipes" - that means the brokers don't know who the sellers are and it indicates the sellers aren't looking for the brokers to find buyers to match the trades, but above all that they value the anonymity of the pipes - if it were a big holder selling (and they wanted to sell more than 1% of MSB's issued shares) they'd approach one of the brokers who have placed lines of stock in the past and that's not happening.
I think most of the activity in recent weeks has been low volume churn (buying and selling on the same day) and 735,000 of net short covering. The churn may even be people selling the open to make it look weak and then opportunistically buying back on dips later in the day - a difficult and dangerous game (this last sentence is a guess, but is based on everything else that's going on).
The pick up in volume today is telling - I think some of the shorts have now given up after the price rise above $1.60 and will knock others out of the way as they try to cover. It'll require nerves of steel for the bigger shorts to try to sell enough to facilitate these guys who are bailing out. As well as the losses faced as the share price rises, they're facing very expensive borrow costs (in the range of 15-20% pa) - I'm glad I'm not trying to fight that battle!
Remember that shorts face technically unlimited losses - if MSB does manage to replicate some of the other big successful health care businesses, we are just at the starting point and losses for shorts could be immense. The pressure builds slowly, but as the price goes higher, the short position in your portfolio gets bigger and starts to breach trading rules and limits, meaning well-disciplined shorts are forced to cover some of their position whether they like it or not.
MSB's position as the 19th most dangerous stock to short (out of c. 500) based on number of days to cover means that the price could be squeezed higher quite quickly. It'll take at least 42 trading days to cover, and that takes us up to or past the next two big announcements = more white knuckles for shorts!
The next important level is the $1.65 high of the past 3 months, then we could well see another run north of $2. This time it'll be much better based, with pretty solid downside support at the current $1.60 level.
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