Expert Casts Doubt On Ambarella Short Squeeze

• Shares of Ambarella Inc (NASDAQ: AMBA) gained nearly 10 percent on Tuesday but have still lost more than half its value after peaking at $129.19 in the summer.
• Karl Loomes, Market Analyst at SunGard's Astec Analytics said there were signs that short-sellers were covering their positions Tuesday morning.
• Loomes added that borrowing on the security remains high and short-sellers may have initiated new positions late in the day.

Ambarella traded as high as $60.89 before settling the day at $56.96, representing a 9.88 percent gain. The strong gains surprised some traders as there were no major announcements that would have supported a near-10 percent appreciation.

Shares of Ambarella traded as high as $129.19 in the summer and the stock is higher by more than 25 percent from a year ago.

Karl Loomes, Market Analyst at SunGard's Astec Analytics told Benzinga that there were "some signs" that short-sellers were covering their positions during Tuesday's session. He added that short-sellers seemingly started to open few positions later on in the day.

Related Link: Ambarella Rallies Out Of Nowhere, Nears Major Resistance

Loomes said the volume coming into the stock on Tuesday was unlikely large enough to support a thesis of a mass short squeeze. In fact, the covering was likely brought about by the share price increase itself as many traders' stops were activated given the "large and sudden" jump in the price.

"Overall it does look like borrowing was down on the day (i.e. net covering) but again, these numbers are far too small to have generated a squeeze," Loomes said. "To put it in context, I believe normal trading volume for Ambarella yesterday was about 5.7 million shares. Our data shows that net covering (or technically the amount of loans returned) amounted to about 200,000 shares, with the total volume of returns for the day around the 500,000 mark."

Loomes concluded that borrowing itself (and presumably short-selling) is still "very high." In fact, short-selling levels are currently at the highest it is has ever been for the company. Accordingly, if a large group of short-sellers decided to cover their positions en masse, this will create enough volume to trigger a squeeze.