Qualcomm Short Sellers Retreat as Squeeze Risk Mounts After 65%

$Qualcomm(QCOM)$   short sellers took advantage of the stock's pullback Tuesday to buy back the shares they sold and close their positions after the chipmaker's 65% surge over the past two months raised the risk of a short squeeze. 

The short volume fell by almost half to 4.1 million shares Tuesday, exchange data tracked. That's about 10.6% of the shares that changed hands that day when the stock tumbled by more than 11%, its steepest slump in more than six years. 

Despite the share slump that day, Qualcomm still attracted a net fund inflow of $92.35 million on Tuesday, as block buy orders from institutional investors more than offset the outflows from smaller retail traders who succumbed to the selling pressure. Block orders are large-scale transactions typically made by banks or hedge funds, indicating that big players may be holding positions while smaller investors flee.

That trend continued as the stock attracted a net inflow of $34.6 million in the first 45 minutes of trading Wednesday, even as the stock swung between gains and losses. Despite this week's decline, the stock is still up about 68% from this year's low reached on April 7. 

That runup in the share price raised the risk of a squeeze, prompting short sellers to take advantage of Tuesday's decline to close out their bearish positions. A short squeeze happens when a rapidly rising stock price forces short sellers to buy back shares to limit losses, which further drives the price higher.

Short interest, or the tally of shares currently sold short that have not yet been bought back by investors stood at 49.5 million shares as of the end of April, according to the latest exchange data available. The "days to cover" metric for the stock remained at 2.2. This metric tells investors how many days it would take for all short sellers to exit their positions based on average daily trading volume.

The technical indicator flashed warning signs that the stock was severely overbought with an oscillator reading of 4403.50. An overbought signal suggests a stock price has risen too quickly and may be vulnerable to a temporary pullback or reversal.

Broader market sentiment came under pressure on Tuesday by April inflation data that exceeded economist expectations. Higher inflation often leads to rising interest rates, which can reduce the value of high-growth technology companies like Qualcomm.

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