A Look Into TASER International Inc (TASR)

01/08/2009 10:52 am EST


Nick Perry

Equity Options Trader, Schaeffer's Investment Research

Earlier yesterday, I noticed that TASER International Inc (TASR) popped up on my scan for stocks showing unusually heavy volume, and I made a note to myself to come back and revisit it to see how the sentiment profile was shaping up. Unfortunately, I don't see much that looks like a good catalyst.

For the longest time, I have associated TASER with heavy short interest. As a contrarian, that interests me, as the shares sold short represent potential buying demand.

However, as the graph to the right shows, there has been a steady decrease in short selling. According to data collected by our Quantified Analysis group, 9% of the stock's float is now sold short. I usually use 10% as my rule of thumb for judging high and low. At this point, there is still a decent amount of short interest out there, but it doesn't offer the potential it once did.

The steady covering is also somewhat perplexing when you look at the weekly chart below.

Chart Courtesy of Thomson Financial

The stock has staged a couple of bounces, but has yet to break the grasp of the downtrend. In other words, this covering has been met with ample selling pressure. A look at the daily chart highlights the more recent action.

Chart Courtesy of Thomson Financial

Here, we see the last rally attempt that ended last fall. During that run, I offered some upbeat comments on the stock. The shares were overbought and I said I was looking for a pullback. However, the stock showed no sign at holding near support levels as the overall market was in freefall mode.

As it stands now, TASR is once again showing a short-term overbought condition as it has put in a sharp bounce from its November lows. That rally from the lows is impressive, but the daily chart shows little in the way of a trend at this point. There is still a bit of short interest that could be covered and add buying demand, but there is little in the way of skepticism from analysts or option traders. As such, I am finding it hard to make a compelling contrarian case for the stock here.

By Nick Perry of Schaeffer’s Trading Floor Blog

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