Twitter Short Interest Falls From January 2 High

“It is as if  investors don’t know which way to go on twitter,” stated Tim Smith of SunGard’s Astec Analytics which tracks real time security lending, correlating extremely well with short data.

“Volumes moved up to a peak towards the turn of the year but since then have tracked downwards,” explained Smith.

“In terms of loan volume as a proxy for short volume, in November when the IPO occurred the volume was around six million.” Since then, security borrowing has been steadily creeping upward and peaked at 32 million shares on January 2. As of last Friday, approximately 26 million shares were borrowed.

Cost to Borrow

Commenting on the borrowing expenses, Smith stated:”The actual cost of borrowing didn’t really become significant until just before the year end, where the actual cost of borrowing Twitter on the second of January peaked around 15 percent on an annualized basis.”

The cost to borrow shares has pulled back significantly to three to four percent a year. This trend is supported by the availability of institutional supply that provides the liquidity for this borrowing. At its peak, roughly 95 percent of available institutional shares were borrowed. The stock still remains hot as 85 percent of available shares are borrowed.

Related: Tesla Reaches Key Technical Level

Key Technical Level

Twitter was rejected at $70.43 on January 3, corresponding with the December 27 high of $71.25 and December 24 $70.87 high, shy of the all time high.

Short interest fell between the second and third by one million shares (roughly 2.8 percent) and the cost to borrow fell from 16 to 11 percent. A likely cause of the drop in short interest is the covering of positions into the level. The next significant level is December 26th’s close of $73.31.

The company has put in a double bottom on a double bottom, likely before a move over $60 or under $55.

Newest Data

“Today [Friday morning] we are seeing a slight upward movement in the shares borrowed again and a slight upward movement in the price people are prepared to pay for borrowing those shares,” stated Smith.

Bears won Friday with shares making a low of $55.87, but gave up ground Monday. Despite the hike in short interest, shares moved 1.44 percent higher Monday to 57.82. Since the peak of security borrowing on January 2, shares are down 16.7 percent.

Note: Read other analyses from SunGard's Astec Analytics here.