Bah Humbug! There has been a lot of "running for cover" on the part of short sellers. The November short interest data was down pretty much across the board. All of our sectors experienced a drop of short selling intensity from last month:
Large drops in short selling intensity were seen in technology services, electronic technology, commercial services, energy minerals, consumer non-durables, process industries and producer manufacturing.
Below are the sectors we follow, sorted by average short intensity - a measure that averages the short intensity of every stock in each sector. Health services and health technology remain the most intensely shorted sector. Technology and energy minerals are lightly shorted:
Technology is at an interesting juncture:
Short selling of technology issues got pretty frothy in the third quarter, but in October and November those shorts have pretty much run for cover. The NASDAQ 100 Index now has a pretty good head of steam, but we are concerned that the fuel for further advances (i.e. short sellers under squeeze pressure) is fast running out.
The observed reduction in short intensity does not guarantee a market sell-off. Price strength can surely last beyond the "short squeezing" phase. Therefore we classify such times as an absence of a positive ( potential short squeezes) and a higher risk environment for the bulls. At the very least, the bulls are advised to pick and choose positions very carefully. What really would be nice is an increase in short selling with a higher market - that is a mix of factors that has fueled many a bull market in the past. We need to see more Scrooges!
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