Short Sellers Push MTI Tech Shares Up 45%

Shares of MTI Technology Corp., an Anaheim provider of data storage products, soared 45% on heavy volume Wednesday, apparently caused by investors covering their short positions.

Shares of the company closed Wednesday at $5.63, up $1.75, or 45.2%, on volume of 2.3 million, compared with average daily volume of 576,500.

Brion Tanous, an analyst at First Security Van Kasper, said that although the company’s business outlook is appealing, it isn’t responsible for the size of activity seen Wednesday.

In a short sale, an investor in effect borrows shares and sells them. Investors hope to profit if a stock’s price falls so they can buy stock at a lower price to replace the borrowed shares. But they lose money if the shares go up because they have to cover the difference.

Investors like to short a stock when bad news is expected, and MTI said last month that it would have lower-than-expected quarterly earnings. When it later released news of its $8.7-million loss, the stock barely budged, falling less than 1%.

Tanous speculated that short sellers were forced to cover their losing positions, effectively pushing the stock price up.