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Short interest mixed


Worthwhile or not?


If you've been Buzzing today, you know we're batting around the idea the bubble in the market is on the short side and not the long side. If you've been reading my stuff, you know I am of the former persuasion. Todd, John, and others (I expect) are on the latter side. Professor Succo just weighed in with an exceptionally intelligent Buzz that points out the rise in short interest may be due to the growth in derivatives ("short equity offset by long equity exposure in derivatives").

I am persuaded by the other Professor's opinions, of course. With the exceptional crew we have here at Minyanville, it is hard not to be. Like I tell my friends when I'm describing the 'Ville: "It's the best financial commentary available anywhere. It just happens to be filtered through the lens of entertaining, animated critters to make often complex concepts easier to digest."

My stubborn streak still has me believing the short interest data matters. Even if, as Prof. Succo says, these positions are essentially hedges, they have an ongoing cost. As the market rises, those costs might be seen as an increasingly unnecessary expense. I guess we'll only know when we know.

Anyway, short interest in the NASDAQ declined between mid-September and mid-October. Short interest on the NYSE rose in that same time frame. The respective index values followed suit.

In the 23 development-stage biotech companies our firm covers, short interest rose in 10 and declined in 13. Not much macro insight there, unfortunately.

A glance at short interest in the Biotech HOLDr (AMEX:BBH, an imperfect proxy for the BTK) shows short interest dropped 9.13% in the last month. A glance at the NBI iShare (AMEX:IBB, a much better proxy for biotech) shows it dropped 11.07%.

Short interest in the iShare tracking the Dow Jones US Healthcare sector index (IYH:AMEX) was essentially flat. This is a little used iShare, however. Short interest in the iShare tracking the S&P Global Healthcare sector index (IXJ:AMEX) was up 8.15%, though this is even less used than the IYH vehicle.

Finally, short interest in the Pharmaceutical HOLDr (PPH:AMEX) rose 47.82%. This is a much more broadly traded ETF though it is highly concentrated in one or two names. Incidentally, if you are a fan of ugly charts, pull up the chart for PPH. The action yesterday improved it somewhat, but yikes!

I think the ugliness in the PPH is likely indicative of the flight from pharma stocks I wrote about previously. The IYH and IXJ are at yearly lows, showing similar activity. It will be one of the more interesting trends to watch in 2005 - where will healthcare funds put their money?

No positions in stocks mentioned.

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