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Short Interest Ratio Drops

August 13, 2009 2:30 pm

Short interest on the S&P 500 dropped in the last reading. This is consistent with the major market averages moving quickly higher, part fueled by the bull argument of a quick and painless recovery and part by the bears running for their caves.

The chart below illustrates the short-interest ratio for the S&P 500 stocks. Notice that major drops usually are a sign of a market coming into a “topping” formation. In other words, heavy short interest helps to propel stocks higher when sentiment changes and visa-versa. So much for the idea of stopping short-selling as it is one of the key drivers that helps to provide liquidity and yes…..BUYS. SEC are you listening?

(Click charts to enlarge)

sitrend

Below are the the trends per sector that may be of interest.

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Disclosure: Horowitz & Company clients may hold positions of securities mentioned as of the date published.

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Written by Andrew Horowitz · Category(s) Markets    |    

3 Responses to “Short Interest Ratio Drops”

  1. Nick on August 13th, 2009 7:21 pm

    Forced buying by short-sellers can lead to mis-pricing of stocks. Which isn't good for the stock market or for the economy in the long run. Because it leads to short-term speculation rather than long-term investing.

  2. MySnowPro on August 14th, 2009 3:33 am

    So what is wrong with Short-term speculation on the short side? And why is it worse than long-term investing? Only buying stocks (or any asset class) is not healthy for the market or the economy either. Buying only can lead to overvalued asset created by applying significant leverage. But perhaps that is just theoretical… It would probably never happen….

  3. Fin/Inv » Blog Archive » In Case You Missed Them - Some Links of Interest (8/14/09) on September 17th, 2009 5:18 pm

    [...] short interest ratio on the S&P 500 has been dropping, signaling a possible topping formation (The Disciplined Investor).The Pragmatic Capitalist worries that a weak hurricane season could cause crude oil prices to [...]