There has been no shortage of rumors over the last couple weeks about potential corporate action or M&A in oversold consumer stocks with high short interest like LULU (25% of float), WFM (10% of float) and SODA (33% of float).
On Aug 1st SODA rallied more than 10% on media reports that they were possibly speaking to private equity to take the company private, options and stock volume went nuts:
On Tuesday, WFM saw a 7% intra-day spike, also including short term call buying on very unconfirmed s chatter that Carl Icahn had taken a stake in the high-end grocer, only to give back most of the gains by day end:
And on Wednesday LULU saw a spike with the stock rising 5% intra-day coupled with a flurry of short dated call buying on unconfirmed chatter that NKE was going to buy them:
The interesting thing about the LULU rumor was that while it was not crazy, it was followed by a piece of news that should have and has to some degree rallied the stock. The founder Chip Wilson agreed to sell half of his stake worth $845 million to private equity and will stand down on his threats to launch a proxy fight. The stock was up 6% last night in the aftermarket, but now only up less than 3%.
I guess the moral of the story is that chasing rumors in a market like this can be a fools errand. It is also important to note that in a market where many participants are starting to get chopped up, and have under-performed, it is not uncommon to see this sort of sketchy action where some nefarious folks look for controversial stories to create short squeezes. Caveat Emptor.