As a retired Wall Streeter (code 7-63-86-87) with a significant investment in SDRL, what we are most likely witnessing is a collusional, predatory short campaign. Based on the share price and daily volume, it probably involves coordinated shorting with some major hedge funds along in conjunction with the trading desks of a couple of investment banks.
Some tip-offs include the daily trading patterns, pre market selling which is a signal that the game is on today, and the appearance of shills on this board bashing the stock.
While the shorts are only concerned with how many traders they can recruit to the cause, I should note some fundamental factors that support a bullish stance:
1. Current backlog of $19.5 B is almost 4 times expected 2013 revenues
2. Bottom line expected to grow 31% in 2014
3. Major opportunity as Mexico expands oil production
4. Stock is trading at a modest P/E
5. Growing Dividend yield of 9.5%
6. Higher revenues this quarter from addition of Sevan Drilling as well as some jack-up and tender rigs
Common sense indicates the above does not make for a solid short story.
Collusional, predatory shorting is illegal, so I urge major institutional owners along with SDRL management to raise this issue with FINRA.
This kind of speculation is kind of useless. No one was blaming anyone when the price went from 34 to 48 (increase of over 40%) in 4 months. This is how stocks trade, they go up and they go down; good ones go up more than they go down. There might be some delusional egotists who believe they are moving/affecting the market, but this is just wishful thinking; there is always a bigger shark. I'm sure many people who got in at low 30s were more than glad to be booking some profit @mid 40s.
In fact, I was short on this stock from 46 down. It went up too fast and a pullback was inevitable. I'm just glad it did and now I have an awesome opportunity to load up after I missed out on it below 35.
Watch the pre market trades, trading at the start and end of the day, and during slow times. You will see a steady stream of small volume, 100 share, sells which most likely are computer generated. To minimize risk, most hedge funds shorting a stock have limits on how much capital they can commit to a shorting strategy and for a long term short they have to pay to borrow the shares. So for a stock with a relativity high share price that trades over 1 million shares/day, it takes more than one firm to be effective in a short strategy. Hedge fund traders from different firms often collude in secret chat rooms to co ordinate their strategy, which btw is illegal. Often a trader at a major hedge fund or I bank calls around to other firms to build up the roster of shorts.
FYI, most traders for mutual funds desiring to unload their positions usually sell in much larger quantities of stock.
Another game is to drive the share price below the 50 & 200 DMA moving averages which causes momentum based traders to join the short party.
Another factor dragging SDRL down is the herd instinct many mutual funds employ in their portfolio strategy. The oil stocks are out of favor so some funds mindlessly dump their shares.
As I posted on 12/9 :If Barron's were involved in some of the recent negative articles on SDRL I'd bet money that it was similar to the HedgeEye short attack on LINN a few months back. Has many of the same hallmarks"
These hedge fund attacks are getting more frequent and more transparent. If the SEC had any teeth they'd go after these crooks.
The SEC has the teeth, it is a matter of getting your pay check whether you do any work or not. When you are not held to any measure of objectives in your job you tend to do nothing as many government jobs are structured. JMHO BMAN
The disk drive stocks were victims for many years of predatory shorting by such firms as SAC and Columbus Circle.
This was called out in a Forbes interview of STX CEO Steven Luczo, an ex Bear Stearns investment banker. Luczo called out certain investment bank Analysts for writing inflammatory, false research aimed at generating trading volume from hedge funds.
Interestingly, after this article and with SAC's problems with the SEC, the drive stocks are now at record levels.
"Based on the share price and daily volume, it probably involves coordinated shorting with some major hedge funds along in conjunction with the trading desks of a couple of investment banks"
as well as a shill journalist conjuring up concerns about debt with a $20 B billion backlog.