American Apparel Inc (APP) Ripe for a Short-Covering Rally Amid Buyout Buzz

American Apparel Inc has been a favorite among short sellers

Dec 19, 2014 at 11:27 AM
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American Apparel Inc (NSYEMKT:APP) has rallied 10% today to $1.10, as speculation swirls the retailer could be a potential takeover target. The reports cap a dramatic week for the company, which saw the ousting of controversial CEO Dov Charney, who was quickly replaced by APP's first female chief executive, Paula Schneider.

Weekly Chart of APP Since August 2013 With 80-Week Moving Average

Heading into today's session, APP was staring at a nearly 19% year-to-date deficit. However, thanks to this week's raft of well-received developments, the equity is on pace to close north of its 80-week moving average for the first time since early September 2013.

Should American Apparel Inc (NSYEMKT:APP) extend its bounce, it could get a helping hand from short sellers or analysts. Although short interest declined 5.2% in the latest reporting period, it still accounts for 11.2% of the equity's available float, representing almost 12 sessions' worth of pent-up buying demand. Additionally, only one brokerage firm currently covers APP, although they maintain a "strong buy" rating. Simply stated, a continued rush to cover by shorts and/or a round of bullish brokerage initiations could translate into a fresh wave of buying power for the shares.

 

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