Through The Fly's Eyes: NYSE, Nasdaq, AMEX
from Joseph Lazzaro of Theflyonthewall.com
Short Interest Rises in June At NYSE, Nasdaq, AMEX
All three major exchanges reported an increase in short interest thru mid-June 2007.
The New York Stock Exchange said short interest totaled 12.5 billion shares in mid-June, compared to 11.6 billion in mid-May.
The Nasdaq reported short interest of 8.9 billion shares in mid-June, compared to 8.2 billion in mid-May. The Nasdaq also reported that the short ratio had increased to 4.35 days from 3.89 in the May reporting period. The short ratio is the average number of days it would take the market to cover - or close the trade with a Buy position - the outstanding short positions.
The American Stock Exchange reported short interest of 1.1 billion in mid-June, compared to 940.5 million in mid-May.
Short interest is one trading tool that bears - or those who believe stocks and/or the market will fall in the period ahead - use to establish positions that will be profitable if a stock/the market does fall.
Many view short interest - particularly shorts of many stocks, collectively - as an indicator of bearish or negative sentiment toward the market, and, by extension that an increase in short positions suggests that more traders believe the market is likely to fall in the period ahead.
However, it's important to note that short interest is only one technical indicator and like all indicators, it has its limitations. Short interest may accurately predict a future market decline, if subsequent objective events confirm the initial evidence. If, however, subsequent objective events offer evidence to the contrary - or even evidence the short interest barometer did not measure - the short positions will not, in consequence, lead to a market decline, but, conversely, lead to a stronger market rally, when many short holders scramble to cover their positions during that market rise.