The rally this week has been a function of oversold stocks bouncing back rather than a short covering rally. The top 10% most shorted stocks have underperformed during the rally this week. Market strength today will be tested by the worse than expected jobless claims report which showed 388,000 new claims, up 46,000 from the prior week. Options market makers have been increasing their net delta long positions on the S&P 500 and the trend is up.
In McClatchy Co. (MNI) the stock has nearly doubled in the past month and a half. Yesterday, there was 262x normal volume with an opening buyer of 2,000 Nov 3 calls. Sourcefire Inc. (FIRE) has traded down to its 200-day moving average where historically it has found support. Yesterday, there were buyers of 5595 calls, or 6x the recent average daily call volume. The implied volatility (options premium) at-the-money is trading at a 52 week high. The stock is short-sale restricted meaning that it is hard to borrow and heavily shorted. The company reports earnings on October 30.