GM shares hard to borrow, but easy to push around

NEW YORK (Reuters) - With General Motors stock up 46 percent from a May 13 low, some investors might think the market believes the troubled automaker may be able to avoid filing for bankruptcy.

But the wild gyrations in the stock, which dropped 24 percent on Friday, suggest that those with positions in the stock have long separated themselves from the fundamental outlook for the automaker, and the stock is driven by short-sellers and momentum action.

A high percentage of GM's shares are being sold short -- 13.9 percent of the company as of May 21, according to data from Data Explorers. Borrowing the stock in order to sell short has become exceedingly difficult, as 75.91 percent of the shares available for loan are being loaned out, the data showed.

The stock is "very hard to borrow," said Bill Rhodes, the founder and chief investment strategist at Rhodes Analytics. "There are so many people trying to sell it short that they've dried up all the readily available borrowing. I'm almost sure that's what you're looking at.

"Just looking at the evidence," he added, "you would suppose that everything available has been borrowed or nearly borrowed, and if that's the case, the irony is that stock is available and susceptible to be squeezed."

When a heavily shorted stock suddenly rallies, those with short positions can be forced to cover, that is, buy the stock back. This can feed on itself, causing a volatile move as more short-sellers cover their positions.

"The squeeze is giving some support to the shares," Rhodes said. "With the stock so low, and since it's not exactly thinly traded, it's easier to push the price around."

That's particularly true when favorable news is released. On Friday morning, a source familiar with the situation told Reuters the Obama administration has no plans to push the automaker into bankruptcy next week.

The shares bounced on the news, rising as high as $2.23 before falling on news that GM's bondholders planned to reject GM's current offer for a 10 percent equity stake. The stock last traded at $1.46.

"You're going to see these big moves up or down," said David Silver, analyst at Wall Street Strategies, regardless of whether it refers to "news pushing it toward bankruptcy or news that bankruptcy may be avoided."

That activity has been reflected in the options market where heavy bearish activity was offset Friday with bullish bets from those who believe the stock could gain some ground in the near term as a result of a short squeeze.

"On any bit of good news you see people liquidating their short positions, and you'll see these short rallies," Silver said.

(Additional reporting by Doris Frankel; Editing by Kenneth Barry)