In a flurry of reports this afternoon, Delta Air Lines was reportedly in merger talks with UAL Corp.'s United Airlines - speculation that sent both stocks higher by nearly 9% on the news. The Associated Press cited an anonymous source close to the talks in its report, but DAL CEO Richard Anderson quickly squelched the rumors, denying any such deal. There have been no talks with United regarding any type of consolidation transaction and there are no such ongoing discussions, Anderson said. Meanwhile, The Wall Street Journal had reported earlier that DAL said it was evaluating strategic options, including mergers, and said it had received a letter from hedge fund and shareholder Pardus Capital Management urging it to take a lead in industry consolidation.

Shares of Delta quickly rocketed higher on the rumor, but have since pulled back to hover just below their 20-day moving average. This pullback should be much to the delight of short sellers, as nearly 10% of DAL's float is sold short. These bears could have been squeezed out of their positions if the stock had held onto those sharp gains. Meanwhile, UAUA also pulled back sharply following the dispelled rumor, finding support at its 10-day moving average. A short-covering rally could have been in the mix for UAUA as well, with more than 13% of the stock's float sold short.