I thought it would be time to revisit the NYSE list of short interest. We've last talked about it in April 2009.

The NYSE table is interesting, but as it is it doesn't say much, because it's sorted by absolute number of shares sold short. But companies have different number of shares, so the sheer amounts correspond to vastly different percentages of their total shares.

To put things in perspective I like to look at the percentage of shares sold short, out of the total number of shares issued (column H in the spreadsheet). Too high and it means short sellers are aggressively shorting the stock and are probably very confident about it. Ignore numbers higher than 100%, these are ETFs for which the number of shares issued is simply a matter of market demand for the shares, which are created upon request.

Another interesting metric to look at is the number of days to cover (column G). This takes the number of shares sold short and divides by average daily volume. This tells us how long it would take for short sellers to unwind their positions. The larger the number the riskier it is for a short seller should a stock move against him/her. But it's also interesting from the perspective of a speculator trying to catch a short squeeze.

Finally, I like to combine both days-to-cover and percentage-short in one metric, where the product of the two gives us a number that "combines" both metrics equally. That is, the higher the number the highest the combination of both metrics together where both are equally important. Again, some numbers are skewed due to ETFs going above 100% shares sold short. Disregard those.

Here's the final table. Use it with care.

Disclosures: Long PG, BAC, GE, HD, EEM, KFT, SPY.

## 2010-02-20

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GREAT! I just mentioned your article in a post.

ReplyDeleteWhat would you say is the rule of thumb where excess sentiment has reached a inflection point?

%Short * Days to Cover > ? Is it greater than 3?

Please see my post. http://bit.ly/mfELsK