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Updated Short Interest

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Who's the crowded trade?

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When you have a 4% increase in short interest on the NASDAQ with almost no gain in the NASDAQ Composite, what does that mean for underlying demand for shares? The gain on the NYSE Composite was more noticeable and it came despite a 2.4% hike in short interest on the NYSE.

Boo's gang worked mighty hard over the last month with very little to show for it. No wonder our ursine friend is so frustrated. I understand the argument that Hoofy's posse has the crowded trade, but one look at the graph below should suggests Boo's side is at least as crowded.

In the last two months, I've penned two of the most bearish macro market columns ever for the monthly version of our firm's newsletter. Those who know me as a glass 3/4 full kinda guy have been rather taken aback by my tone over the last two months.

I respect the bearish sentiments of my fellow Minyanville professors because, frankly, they are much smarter than I am about the macro market. But I also have to respect the generally bullish macro outlook of Professor Reynolds because he's been right over a long stretch of time.

Then I look at the short interest trends over the last 18 months and I have to wonder:

In the last 18 months, every time we've seen this kind of a relative inflection in NASDAQ short interest (light blue line), it has been followed by a nice gain in the NASDAQ Composite (dark blue line).

While I have very little doubt that systemic issues unique to my chosen sector of biotech will cause the sector to not perform well, I have to allow for the idea "not performing well" means nothing worse than underperforming an otherwise up market.

In this month's missive to my Subscribers, I allowed for the idea there was a period of calm after the upcoming holiday weekend and before the Democratic Convention in late July. If past patterns in short interest hold, we could have quite the nice rally.

You'll excuse me if I don't bet the farm on it, however.

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.

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