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August 22, 2005

Why Shorting Isn't Easy

The last two days pose the ideal example of why shorting is not for the weak of heart. Research in Motion, about whose imminent demise I am still confident, posted large back-to-back gains for an eye-popping two-day run of 10.6%. There is no news on the wire supporting the move. On Friday I speculated that options expiration mechanics may have pushed the stock higher and that, if so, it would unwind early this week. Now, the two-day run on lack of news looks very much like a short squeeze. How much there is to squeeze can't be known, but it does seem to be setting up an ideal entry situation for those who would like to short, but are not yet short, RIMM.

The rest of the action today was rather dull. Traders seem to be twiddling their thumbs for the moment. These lulls present perfect opportunities for catching up on reading. Traders should always be studying history. As the old saying goes, those who don't learn from history are doomed to repeat it.

Disclosure: Short RIMM


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