SHLD settles into close as rumor fades

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Two events were getting Sears Holdings (SHLD +9.39%) investors all ruffled Tuesday, sending the stock up 11% in morning trading.

First, there was the mysterious $159 million stock purchase last week from Eddie Lampert, the billionaire who already controls the company. Lampert bought the stock — nearly 4.5 million shares — for personal ownership from his hedge firm, ESL Investments. Lampert and his hedge funds own nearly two-thirds of the outstanding stock.

Why would Lampert put so much more of his personal money into an entity failing on so many levels? After a rough holiday sales meltdown, Sears is closing up to 120 stores. Some suppliers aren’t getting paid. The credit rating has been downgraded. Cash is dwindling. Unless something major happens, this retail chain is in a death spiral.

But then a rumor emerged. Maybe Lampert’s buyout is a sign that the company will be taken private? Of course! Why else would he be snapping up shares? Let’s jump on this one! And so Sears shares soar. Neither Sears nor Lampert has confirmed anything.

Analysts pooh-poohed the idea almost immediately.

“We think the company has bigger issues that could make a ‘going private’ transaction impossible, including significant cash burn with rapidly deteriorating financial performance and reduced liquidity, particularly if the major vendors become reluctant to fund holiday 2012 shipments,” Mary Ross Gilbert of Imperial Capital told Reuters.

There’s another possible reason for the stock gain, as the video points out. Perhaps we’re seeing a short squeeze as traders rush to cover their positions.

Aren’t investors tired of Sears’ drama yet? And with so many questions and mysteries at play here, why jump into the stock at all? “The fact is, no one really knows anything about Sears, and it’s becoming very dangerous to read anything into the stock price gyrations,” writes Shira Ovide at The Wall Street Journal.

Investor enthusiasm appears to be dampening a bit. Sears shares have fallen back from their 11% rise to about a 6.5% gain by Tuesday afternoon.