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Strategies & Market Trends : Roger's 1998 Short Picks
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To: Lachesis Atropos who wrote (11769)7/21/1998 6:25:00 AM
From: Dale Baker   of 18691
 
I don't find days to cover very useful either, but it is one measure which you can apply across many stocks with rough parity. It supposedly shows how much pressure short covering could create. If XYZW has 2 million outstanding shares short and an average daily volume of 500,000, it would take four days of nothing but buying to cover to eliminate all the short positions.

In fact, NASDAQ double counting means it would take eight days to cover. That doesn't count normal trading, and the added volume which a short squeeze always brings into a stock (like OCOM yesterday). Pretty messy as ratios go.

I find it more useful to compare outstanding short shares to the float. Much of AMZN's runup comes from the fact that the float is 100% short, meaning that AMZN longs go to bed at night knowing that sooner or later, a short holder has to buy THEIR shares. That's tremendous leverage. A counter example is TAVA, with a large float and relatively low short interest. Any price spike in TAVA always gets bludgeoned back into submission by new shorts because it is easy to borrow more shares. Also, daytraders know that TAVA can't run far due to the float and add more selling pressure anytime it runs more than a point.

JMHO.
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