Seeking Alpha – Many here on Seeking Alpha look to the holdings of large hedge funds for investment ideas. The market activity of the past weeks has highlighted one of the risks of following along. When a hedge fund with a large ownership position liquidates its holdings in a company, the stock price can get hit hard. Witness the stalactite like charts of C, WFC, and BAC. All had large downward moves on huge volume, no doubt exacerbated by the exit of hedge fund investors.
Tanzanian Royalty Exploration (TRX) may be particularly at risk for a sharp liquidity driven drop. Recently, trading volume has evaporated. Investors focused on the long side have pointed out to me that the short interest days to cover has dramatically increased from about 10 days in May to a peak of over 24 days at the end of July.
