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Sharp rises in short interest in February

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Who's ever heard of a herd of bears?

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Short interest for the period between mid-January and mid-December rose sharply on both exchanges. On the NYSE, the gain was 3.5%. On the NASDAQ, short interest rose by a whopping 6.2%. Short interest on the NASDAQ has risen by over one billion shares since July 2002.

Many will find these gains interesting given this is the first full month operating under the Regulation SHO rules. This essentially toothless rule purportedly limits the practice of naked shorting - selling shares short without actually borrowing them first. It remains to be seen if Reg. SHO's trade labeling initiative (trades are now required to be labeled as buy to open, buy to close, sell to open, and sell to close) will pay dividends down the road.

The graph I've been using appears below. It uses January 2003 as an index year (for no reason than that was a complete year bull market and the first year where I collected data.

Back in my home sector, of the 22 companies in our coverage universe, 16 saw their short interest increase. Gains in short interest on these stock significantly outpaced declines in the other six on a percentage basis.

Short interest in the IBB, the iShare ETF for the NASDAQ Biotech Index, rose 24.59% to 7.2M shares. The BBH, a HOLDr ETF approximating the AMEX Biotech Index, saw short interest decline 3.5%. This fits with the relative performance I've been noting between the IBB and the AMEX Biotech Index (BTK) on the Buzz.

Finally, the short interest on the 159 stocks in the NBI represents 11.55%. Total short interest for all NBI stocks increased, just not as much as the increase seen in the NASDAQ short interest numbers.

No positions in stocks mentioned.

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