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Short Interest Divergence


I know, I know, but WHEN will it matter?


NYSE short interest for the period between mid-May and mid-June declined 1.89%, the first decline after six straight months of gains. NASDAQ short interest rose 2.08%, the fifth straight month of gains. In the last year, 700,000 new short shares have been added. 1.2 billion have been added in the last two years.

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. I'm not certain the graph is anything more than informational, but I think it is worth pointing out the pattern of the indexed NADSAQ Comp (in dark blue) after each time it was eclipsed by the indexed value of the NASDAQ short interest (light blue).

Beginning last month, I started tracking short interest in biotechnology stocks that ended up on the Regulation SHO Category A and B lists (read more about this here). These stocks were selected because they were members of the NASDAQ Biotech Index (NBI) at the time the SHO Part Two rule was initiated. Short interest in these stocks increased in the last measurement period, corresponding to an overall increase in short interest in biotech.

I must note that the measurement of overall short interest in NBI stocks was confounded in this measurement period by the rebalancing of the index. Several stocks were removed, but more were added taking the total stocks in the index from 157 to 163. The fact short interest increased in the NBI could be due to this rebalancing. I will note that the average short interest also increased. I'll note further that the Reg. SHO NBI list, whose membership I held constant, also increased.

Short interest in the IBB, the iShare ETF for the NASDAQ Biotech Index (NBI), rose 7.62% to 9.76M shares last month. Last month, short interest in the IBB was down 9.2%. The BBH, a HOLDr ETF approximating the AMEX Biotech Index, saw short interest drop 4.24%, the third straight monthly drop.

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No positions in stocks mentioned.

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