Diamond Foods Shares Surged: What You Need to Know

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Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of snack-food producer Diamond Foods (NAS: DMND) grew tall and strong like a walnut tree today, rising as much as 14.8% on brisk and spiky volume.

So what: This looks like a classic short-covering rally. Diamond shares fell as much as 73% from 52-week highs amid allegations of an accounting scandal. As of three weeks ago, 60% of the float was sold short, and the company reports earnings next week.

Now what: Shorters don't want to get caught holding a risky position across a potentially face-saving earnings report, and it's hard to imagine short-sale profits getting any bigger anyhow. When one large position covers, others follow out of concern that they could get left behind.

Will Diamond Foods save face next week? Without inside knowledge of the accounting investigation, it's impossible to say. Add the stock to your watchlist and tune in on Dec. 29 for the full lowdown on walnut accounting and the contentious plan to buy Pringles from Procter & Gamble (NYS: PG) .

Interested in more info about Diamond Foods? Click here to add it to My Watchlist.

At the time this article was published Fool contributor Anders Bylund holds no position in any of the companies mentioned. Motley Fool newsletter services have recommended buying shares of Procter & Gamble. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinion, but we all believe that considering a diverse range of insights makes us better investors. Check out Anders' holdings and bio, or follow him on Twitter and Google+. We have a disclosure policy.

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