MDA thread:
Thought you might find this interesting:
From Schaeffer's Investment Research-
The total short interest of an equity represents the total
number of shares that have been shorted (borrowed and sold)
by investors and not closed out at the time of reporting.
These shorted shares that must be repurchased, or covered,
at some future date. The larger the total short interest,
the more potential buying power that is sitting on the sidelines.
In the event that the share's price starts to appreciate very rapidly, traders may be forced to cover their short positions because of margin requirements or to prevent losses from getting out of control In turn, this creates more upward price pressure, which forces even more short positions to be covered.
This phenomenon is called a short-covering rally and will
sometimes happen to stocks with a large amount of short interest.
The current short interest for Standard and Poor's Depositary
Reciepts (SPY - 129.00), a security that allows investor to go
long or short the S&P 500 Index (SPX - 1283.61), has reached
approximately 29,000,000 contracts from 21,000,000 contracts
last month. This means that investors have reached a pinnacle of
pessimism for the outlook of the SPX. This record level of short
interest is the highest seen since October 1998, which is just
before the market began to rally. This combination of investor
pessimism and potential for a short-covering rally are healthy signs for the market.
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