Watching the Shorts on SGMS

02/03/2009 10:34 am EST


Nick Perry

Equity Options Trader, Schaeffer's Investment Research

Shares of Scientific Games Corp (SGMS) are on the move after some upbeat comments. However, today's optimism isn't an isolated event. According to Zacks, four out of seven analysts (57%) rank the stock with a buy rating. Here's what else is noteworthy from the stock's sentiment profile.

The graph to the right plots total short interest. What's curious about this situation is that total short interest has been plunging, which adds buying demand. However, a look to the daily chart below shows the shares trended lower through the second half of last year and have moved sideways since then. In other words, this buying demand was easily absorbed by the market, suggesting that ample selling pressure has been hanging overhead.

While short covering hasn't been enough to derail the overall downtrend, it could help explain some of the volatility. Coming out of the November bottom, the stock gained more than 70% when it peaked last month. Even after the recent gain, the equity is still down over 25% from that peak. According to data collected by our Quantified Analysis group, 12% of the stock's float is currently sold short.

By Nick Perry of Schaeffer’s Trading Floor Blog

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