Shares of USEC (USU) , a small uranium company, traded higher for the 11th consecutive day on Friday. Shares spiked over 50 percent during the trading session and are up over 700 percent since July 9.
The most bizarre aspect about USEC’s trading activity is that the stock has moved astronomically higher on no news. The company hasn’t announced earnings, an acquisition, or anything else of significance.
To address the suspicious activity, USEC released a statement on July 22, but gave zero clues as to why shares are trading with such insanity. “The company stated that its policy is not to comment on unusual market activity,” read the statement. The company has remained silent since that date.
Traders, however, believe that the stock’s meteoric rise is a textbook example of a short squeeze. This occurs when a rapid gain in a stock forces short sellers (traders betting on the stock to lose value) to cover their bets in order to avoid further losses. This effectively acts as buying the stock, so the effect is compounded and often continues until all of the shorts are “squeezed.”
“It looks like as more people became aware of [the rally], the fast money got involved and proliferated the squeeze,” Frank Davis told Reuters earlier this week. Shares are up 65 percent since Davis’ comments, but his thesis likely remains the same at this point in time.
USEC announced in June that its “Megatons to Megawatts” program, which intends to convert 475 metric tons of weapons-grade uranium into fuel for use in nuclear power plants, was 95 percent complete as of June 24. The company also completed a 1-25 stock split on July 1. This news, however, is probably unrelated to the short squeeze.