How to Use Short Interest to Measure the Market
Well, it looks like the good days in the stock market are over. At least in the short term. It feels like the day after xmas. You can remember the good times but you know they won't be back for another year.
This market is beginning to make many investors twitchy. So don't be surprised if you're feeling the same way. I encouraged folks to hedge their portfolios. Those that remained cautious thru the last couple of months are giggling all the way to the bank.
Is it going to get worse?
Back in March the market seemed to bottom out. Bear Stearns had fell down and many thought the worst was over. I'm aware that I certainly hoped it was. Unfortunately, plenty of investors seemed to change their mind.
Now I know what you are thinking. How do I know what other speculators are thinking?
I should tell you, but first give me a minute.
looking at the US economy we still have our justifiable share of issues. The housing market is in shambles. This hasn't helped US consumers one bit. Consumer confidence numbers are at 20 year lows.
Toss on the uneasy financial industry and we have a very big mess. Top that off with inflation in food and fuel. And we'll be cleaning this mess up for a long time.
I am starting to query thoughts of a year-end rally.
I believe we'll have a few specific industries that'll continue doing well. Like agriculture, metals, mining, and technology. The rest of the market's looking pretty ugly. Now I'm not alone in these thoughts. So how do I know other stockholders agree with me?
Here's the secret. Short interest.
Each of the major markets report short interest on a regular basis. It's simply the quantity of shares that are borrowed and sold by speculators. The hope is that stock prices will fall and they can buy back the shares they borrowed at a smaller price. That is what people mean when they talk about'shorting a stock.'
you have heard the old proverb'Buy low and sell high?' Well, short selling turns that the other way up. With short selling you would like to sell high. THEN. .buy low.
recently the New York Stock Exchange ( NYSE ) released their short interest numbers. It's really entrancing information. It covers not only individual stocks but the market as a whole as well . The most recent statement was shocking.
To the numbers.
Short selling on the NYSE set a record for the first half of June! As it now stands, speculators have sold short more than 17.6 bn. shares of stock. If that sounds like a lot, believe me, it is. What's more extraordinary is the rise in the last 2 weeks. Short interest increased 7.4% from May 30 to June thirteen.
clearly plenty of speculators assume the market's heading south.
Now I do not typically short stocks. In my mind it is too risky. If a trade moves against you, massive losses can pile up in the blink of an eye. Besides, in order to short
