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Technology Stocks : Ascend Communications (ASND)
ASND 217.17+0.3%3:59 PM EST
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To: Jeff Jordan who wrote (22459)11/10/1997 7:54:00 PM
From: Chi-X  Read Replies (1) of 61433
 
Jeff, I can understand your confusion. Here's the scoop. What Style Pts said is correct when he stated:

It's the opposite way around, Jeff. Shortsellers borrow shares from longs and immediately sell them (causing down pressure), with intentions of covering them by repurchasing the shares later (causing upwards pressure).

Additionally, shorts can also cause a stock to go up higher in what is referred to as a "short squeeze". For example, if I were to be short ASND at $35 and this stock dramatically rose to $40 and $45, then me and other shorts would be in danger of a short squeeze. This is where all the short sellers begin to panic and try to cover their short positions all at the same time. Also, in rare instances brokers may require you to cover a short position if the shares no longer become available. All those buys plus buying from momentum players cause the stock to accelerate upward.

This is why it is bullish for a stock to have a large short position. A large short position can cause the stock to make dramatic moves upward and sustain a rally. ASND only has around a 22 million short interest which is only 11.7% of the shares outstanding. Not really enough to be considered a bullish factor.

Short squeezes usually happen when a stock is going up. Not when a stock is going downhill since short sellers are under little pressure to cover their positions.


Cheers,
Chi-X hath Spoken!
"There shall be no bouncing, before its trouncing"
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