August 22, 2010 | In: Financial

Why I’m Very Bullish on CVBF

I bought CVBF stocks a couple of weeks ago and first I was wondering whether it was a wrong decision or not as the stock is currently in a downward trend. Although the bank is currently under scrutiny, the fundamentals are still very strong and apparently senior executives are willing to stand by their company and not to jump ship. There hasn’t been a single internal sale of stock since the subpoena, in fact, executives are buying.

Of course, the stock is very bearish , with an RSI at 30, BUT, here’s something interesting, the Short Interest Ratio is 27.7%, which means 27.7% of the daily average volume is shorted. Doesn’t that mean pessimism? Well if the short ratio is 3% or 4%, yes it indicates pessimism, but, if its that high, then it’s highly bullish, and let’s examine why.

Consider the following scenario, the stock goes up slightly, and shorters will have to start buying the stock in order to return it back to the lender. The stock goes up again, and now more investors will have to run for cover and buy the stock in order to limit their losses, and then the stock will go up more, as demand increases. This will create an avalanche that may potentially cause the stock to skyrocket in a few days.

The stock closed at $7.56 on the Friday, and the book price for this stock is $6.33 (the stock is trading slightly above its book price, BIOS, anyone?), the bank is doing very well, and insiders believe in it. What’s there to fear?

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