Short Interest on NYSE Sets Record; Rally in April May Create Challenge
By CASSELL BRYAN-LOW
Staff Reporter of THE WALL STREET JOURNAL
NEW YORK -- Short sellers who had been benefiting from the stock market's downturn might have been caught going the wrong way in this month's rally: Statistics show there was a record level of short-selling activity in the month through April 12.
See complete short interest figures from the Nasdaq Stock Market.
The statistics released Thursday showed that short interest on the New York Stock Exchange, or short-selling positions that aren't yet closed out, had hit a high for the second month in a row. The level jumped 7.2% to 5,378,963,615 shares in the latest month through April 12, from 5,018,347,629 shares on March 15.
While March was a good month for short sellers, the market's sharp rebound in April has proved much more of a challenge. Wednesday's interest-rate-cut inspired rally took a particularly big toll. "That was a nasty day for the short sellers," says Steve Leuthold, president of Leuthold/Weeden Capital Management in Minneapolis, who co-manages a short-only mutual fund. "We lost 7%" on Wednesday, he says, but adds that the fund is still up year-to-date.
Investors who sell securities "short" borrow stock and sell it, betting the stock's price will fall and that they will be able to buy the shares back later at a lower price for return to the lender.
In terms of earnings, much of the negative news "has been factored in already," says Brian Rogers, portfolio manager at Short Alpha Management, a short hedge fund in New York. Currently, he says, what is important for short sellers "is the guidance these companies give for six months down the road."
On the American Stock Exchange, owned by the National Association of Securities Dealers, short interest edged up 0.1% to a record 235,543,080 shares, from 235,237,364 shares mid-March, the previous record. Figures for the NYSE and Amex reflect transactions through April 9, allowing extra days to complete settlement. Data for the Nasdaq Stock Market are to be released next week.
Short interest is often considered an indication of the level of skepticism in the market. Short interest reflects the number of shares that have yet to be repurchased to give back to lenders. In general, the higher the short interest, the more people are expecting a downturn.
Some investors will allocate part of their portfolio to a professional short seller to hedge, or protect, their assets in case the market falls. Investors also may rely on short selling for other purposes, including a hedging strategy related to corporate mergers and acquisitions, hedging convertible securities and options, or for tax-related purposes.
The next NYSE short-sales-outstanding report will be published in The Wall Street Journal May 22.
Write to Cassell Bryan-Low at cassell.bryan-low@wsj.com |
