DGX: Insiders vs. Shorts

The most recent short interest data was recently released by the NASDAQ for the 07/15/2014 settlement date, and Quest Diagnostics, Inc. (DGX) is one of the most shorted stocks of the Russell 3000, based on 18.44 "days to cover" versus the median component at 6.58. There are a number of ways to look at short data, but one metric that we find particularly useful is the "days to cover" because it considers both the total shares short and the average daily volume of shares typically traded. The number of shares short is then divided by the average daily volume, to express the total number of trading days it would take to close out all of the open short positions if every share traded represented a short position being closed.

START SLIDESHOW:
Ten Bargains You Can Buy Cheaper Than The Insiders Did »

In the case of Quest Diagnostics, Inc. ( DGX), the total short interest at the 07/15/2014 settlement date was 21,972,780 shares, which compares to the average daily trading volume of just 1,191,299 shares, for a "days to cover" ratio of 18.44.

When short sellers eventually cover their positions, by definition there must be buying activity because a share that is currently sold short must be purchased to be covered. At the present levels of short interest, if from this point forward every single DGX share traded represented a short position being closed, then at the average daily volume of 1,191,299 shares it would only be during the 19th trading day that every short position would be closed.

So it would stand to reason that should some unexpectedly good news come out, and short sellers did not have 19 days of patience but instead wanted to cover their short positions very suddenly, that situation could result in sending the stock higher until the higher price produces enough sellers to generate the necessary volume to close out those positions quickly.

Quest Diagnostics, Inc. ( DGX) has something relatively rare for a stock with this much short interest, that being insiders taking the other side of the trade. Looking back over the trailing six month period, DGX has seen 2 different instances of insider buying, as summarized by the table below:

Purchased Insider Title Shares Price/Share Value
02/06/2014 Timothy L. Main Director 5,000 $50.71 $253,526.00
05/05/2014 Mark Guinan Senior Vice President & CFO 4,000 $55.51 $222,023.20

Below is a chart showing the "days to cover" for DGX over time:

Loading+chart++2014+TickerTech.com

And looking at the chart below, DGX's low point in its 52 week range is $50.46 per share, with $64.10 as the 52 week high point — that compares with a last trade of $60.60.

Quest Diagnostics, Inc. Moving Averages Chart

In recent trading, shares of Quest Diagnostics, Inc. ( DGX) were changing hands at $60.60/share.

More from Stocks

Finding Stocks Right for You: Cramer's 'Mad Money' Recap (Friday 8/25/18)

Finding Stocks Right for You: Cramer's 'Mad Money' Recap (Friday 8/25/18)

Flashback Friday: Amazon, Chip Stocks, Memorial Day

Flashback Friday: Amazon, Chip Stocks, Memorial Day

Week Ahead: Wall Street Looks to Jobs Report as North Korea Meeting Less Certain

Week Ahead: Wall Street Looks to Jobs Report as North Korea Meeting Less Certain

Dow and S&P 500 Decline, Energy Shares Fall as U.S. Crude Oil Slides 4%

Dow and S&P 500 Decline, Energy Shares Fall as U.S. Crude Oil Slides 4%

Replay: Jim Cramer on the Markets, 10-Year Yield, Oil Prices and Foot Locker

Replay: Jim Cramer on the Markets, 10-Year Yield, Oil Prices and Foot Locker