Bears On Wall Street Look To Minimize Losses

MGN Online
Thursday, May 9, 2013 - 7:00pm

 

The broader U.S. stock market was barely moving Thursday, but a few favorites among short sellers were surging following upbeat earnings reports.

Tesla rallied after the electric car maker delivered its first ever profit and topped sales estimates. Green Mountain Coffee Roasters shares jumped after the company reported better-than-expected earnings and announced plans to extend its partnership with Starbucks. And Groupon shares rose sharply after the daily deal site reported a narrower loss compared to a year earlier.

One reason all three names were gaining so much traction is due to a so-called short squeeze. Shares of Tesla, Green Mountain and Groupon are heavily shorted, meaning that buyers have borrowed the stocks on a bet that their prices will fall. As the stocks rally, short sellers rush in to buy the stocks in order to cover their short positions before they head even higher.

As the bears look to minimize their losses, here are four things to watch:

1. Stocks still near all-time highs: The Dow Jones industrial average hit a fresh all-time high Thursday but bounced around the breakeven line in afternoon trading.

The S&P 500 was flat a day after closing a record high, while the Nasdaq continued to trade at its highest levels since November 2000.

Despite the small step back Thursday, all three indexes are up between 13% and 15% since the start of the year.

"I think we're taking a little breather," said John Edmunds, a business professor at Babson College in Wellesley, Mass., who has written several books about international finance. "[But] I don't see anything that would cause a deep decline. A lot of people think it's gone up so far, it's going to decline, but the fundamentals are actually getting better."

Global markets, which have also been rallying this year, took a pause Thursday as well. The yen continued to weaken against the dollar though, reaching a new 4-year low in late afternoon trading.

2. Jobless claims fall to another 5-year low: After a solid monthly jobs report last week, the U.S. government said that initial jobless claims dropped further than expected to 323,000 last week.

That's the lowest weekly tally in five years, signaling that layoffs are back to pre-recession levels.

3. Microsoft may be interested in buying the Nook: TechCrunch reported that Microsoft may offer to buy the digital assets of Barnes and Noble's Nook Media e-reader unit for $1 billion. The speculation sparked a surge in Barnes & Noble stock.

4. Monster shares sink: Shares of Monster Beverage tumbled after the company's quarterly earnings missed estimates. The energy drink maker, which has been criticized for marketing its highly caffeinated products to children, blamed the drop in earnings on legal costs and other short-term factors.

In other earnings news, DISH Network released quarterly results before the opening bell, showing a decline in sales and profit. Shares edged lower.

News Corp. shares jumped after the media conglomerate said sales rose in the first quarter and reported earnings that met expectations.

Nearly 90% of the companies in the S&P 500 have now reported results for the first quarter. A majority have topped forecasts for earnings, which are now on track to rise about 5% compared to a year earlier, according to Thomson Reuters. But revenue growth has been subpar.

More than half of the companies that have reported have fallen short of revenue expectations, compared to a typical quarter when more than 60% beat sales estimates. Based on the results so far, revenue growth is expected to be flat compared to a year ago.

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