Sorry!! The article you are trying to read is not available now.
Thank you very much;
you're only a step away from
downloading your reports.

Short interest drops in November

By

Traitors.

PrintPRINT

Short interest for the period between mid-October and mid-November showed a second consecutive month of declines in NASDAQ short interest as well as a decline in NYSE short interest.

As you may recall, I am of the opinion there is a short bubble in the market. So many people are leaning on stocks for so many reasons that the potential for a breakaway upside move fueled by short covering is real. I will note, however, that just as the "bubble" on the bull side went longer than many contrarians expected, this bubble may continue to expand beyond what the bulls think reasonable.

In my last News & Views on this subject, I noted some Buzz conversation that the general rise in short interest indicated by the graph above was not a true measure of bearishness but a function of derivative hedging: "short interest may be due to the growth in derivatives." Or, as Prof. Succo put it, "short equity offset by long equity exposure in derivatives."

I don't disagree with Prof. Succo here, I just believe that these hedges have a cost. Not only are hedgers paying fees, interest, and in-kind dividends, they have a cost related to the rise of the underlying securities. At some point, that cost will outweigh the benefit of keeping the hedge in place. Holders of these positions cannot become too complacent. If they are as hungry for bits and pieces of performance as the collective intelligence of the Minyanville Professors believe they are, then they will examine these costs closely.

It could be the reaction to such an examination is to leave the short positions intact and do their rebalancing on the derivative side. The function of this would be to leave the short bubble intact.

My gut tells me, though, current levels of short interest are unsustainable. To borrow a phrase from Boo's side of the ledger, I can't tell you when it will matter. Only that I believe it will matter.

Back in my home sector, of the 23 companies in our coverage universe, 18 saw their short interest decline. Short interest in the IBB, the iShare ETF for the NASDAQ Biotech Index, dropped 14.32%. The BBH, a HOLDr ETF approximating the AMEX Biotech Index, saw short interest rise 1.95%.

No positions in stocks mentioned.

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.

PrintPRINT
 
Featured Videos

WHAT'S POPULAR IN THE VILLE