Sometimes it's as simple as busting the shorts.
First, I don't like to play "break the short-sellers." We did a lot of shorting in my time at my old hedge fund and we made a lot of money doing so. But as I showed pretty dramatically in Confessions of a Street Addict, it can be horrendous and nightmarish when people find out you are short and decide to break you.
The truth is, though, that March may have been the ultimate break-the-shorts month.
Think of it.
Tesla (TSLA) , which needs financing so badly to be able to get toward its goal of 500,000 cars, had been relying on the kindness of strangers, so to speak, to bring in the cash.
Now it has Tencent, the gigantic Chinese holding company that can most likely meet any financing needs that might come along. Tencent only bought 5% of the company for $1.7 billion, which is chump change if you are going to do the kind of build-out that Elon Musk wants to do. However, if you are short Tesla betting that it has to run out of money eventually, I think you now have a losing hand. It was a real coup by Musk to get Tencent and it might as well be a blank check for him to get where he has to go. Given the demand for the next car and the great reputation Tesla has, it is difficult to see where it can get derailed other than perhaps its venture into solar when it paid $2 billion for SolarCity (SCTY) . However, even there Musk has been able to drum up some interest in the full scope of charging batteries at home with SolarCity panels, which cuts back on the use of a grid that is still heavily carbon-reliant.
Tesla has always been a difficult short. Musk knows it; he brilliantly chose to have Goldman Sachs underwrite the deal, though, and the Goldman analyst has a sell on the stock and a price target about $100 lower than here.
The analyst is wrong. The integrity of Musk took a giant leap with that selection.
Then there is Amazon (AMZN) . Not that long ago, on Feb. 2, the online retailer and web hosting company reported a quarter that was much weaker than expected. Amazon's pretty cryptic on its conference call and really didn't elaborate much about the shortfall, relegating it to the high-growth spend mode that Amazon has often advanced -- as opposed to retreated.
I thought the vicious move down, $842 to $806 in two days, was simply a classic Amazon buying opportunity. Of course, I was greeted as a cheerleader for the company and dismissed as someone who just didn't get that the growth was slowing and the luster was lost.
Amazon is spending a fortune overseas to dominate like it does in the U.S. and now its web services business is on fire, as we know just this week from Red Hat's (RHT) surprising quarter, as Red Hat does a ton of business with Amazon.
It's been straight up ever since as the usual weak hands got blown out and the strong ones took the stock up knowing that this is how Amazon rolls. It shows profits, even big profits, when it wants to. We basically want the company to grow revenues more than show profits and that's exactly what it's doing.
That does make it a horrendous short.
How about Apple (AAPL) ? When you have a straight-up move like Apple has had from the $90s, you tend to get some serious profit-taking at a certain point. But there's been none. Given that this is a $750 billion company, that's rather extraordinary.
I think that you saw a big short position build up as the stock seemed to plateau at $140 for almost all of March.
Given its size, it seemed like a terrific place to short the stock, especially given the re-introduction of archrival Samsung with its Galaxy 8 phone, replacing the disastrous fire phone that did serious damage to the company's reputation and cost it as much as $5 billion.
Sure enough, the reviews are incredible for the Samsung phone. Literally off the charts. You can't get better publicity.
But it didn't hurt Apple's stock. It now seems like a good short spoiled. You know my view: Own Apple, don't trade it. Nevertheless, I do think now you have to wait to buy and I am very concerned that so many analysts are calling the next Apple phone iteration a supercycle. That's been the kiss of death for the last two supercycles, the coal supercycle in 2011 and the fracking sand supercycle in 2014, both before coal and then oil collapsed.
I hate the term. It creates tremendous expectations. If you were ever going to short Apple, you would have to wait until the real Apple bar-raisers express their disappointment. And they will, believe me. We just don't know from what level.
Not that long ago, Netflix (NFLX) reported a number that indicated to many a critic that the company's growth was flagging. The company actually talked about how there was a credit card issue that impacted the bottom line. Given that no other company seemed to talk about the issue, it was considered to be an alibi for a slowing juggernaut and the shorts came out in earnest.
That was more than 20 points ago as we saw the issue was indeed a credit card glitch because growth accelerated dramatically.
The shorts have been hung badly and they keep getting hung.
We had a major set of short-sellers come out and lean all over Facebook (FB) in advance of when Snap (SNAP) came public. The thinking? Snap had faster growth than Facebook, so the big-gun mutual funds would sell one to fund the other. (Apple and Facebook are part of TheStreet's Action Alerts PLUS portfolio.)
But then it turns out that Facebook's Instagram had slowed the growth of Snap and that pretty much meant you did not or should not sell Facebook. Sure, Snap's got amazing loyalty among its users and I think the company's got a lot going for it, but the people who own Facebook at 10x accelerating sales are probably reluctant to buy a company that sells at 24x sales even if sales are going to double, which I expect they will.
So the short went wrong.
What's the impact of all this? It tends to make shorts less emboldened to lay all over a stock and offer big amounts of it. I know shorting isn't "bad" per se, but when the shorts get short and loud, it's a very big deal and hurts a stock. More important, short-sellers are known to be "smarter than the average bear," so to speak, and draw in a lot of copycats.
The net impact is that when they are wrong they create a wave effect of buying that is fierce and frightful to others.
And that's a huge burst of acetylene to an already lit fire.
That's what I see happening here. Some will call it a blow-off in these names and many others.
I just say they got the wrong side of the trade.