Short Interest Climbs 3.1% To a Record on Big Board
By EILEEN KINSELLA
Staff Reporter of THE WALL STREET JOURNAL
NEW YORK -- Short interest on the New York Stock Exchange rose to a record in the latest month, while short interest fell on the American Stock Exchange.
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See a Complete Listing of Stock Interest Positions
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Short interest on the Big Board increased 3.1% to 3,666,910,472 shares in mid-December, up from 3,555,130,231 shares in mid-November, surpassing the record that was set in June.
On the Amex, the figure fell 1.9% to 189,752,272 shares from a revised 193,352,385 shares in mid-November.
Investors who sell securities "short" borrow stock and sell it, betting that the stock's price will decline and that they will be able to buy the shares back later at a lower price for repayment to the lender. Short interest is the number of shares that haven't been purchased for return to lenders, and as such, is often viewed as an indicator of the degree of negative sentiment among investors in the stocks.
Investors may also rely on short selling for other purposes, including as a hedging strategy related to corporate mergers and acquisitions, to hedge convertible securities and options, or for tax-related purposes.
The level of negative sentiment measured by the Big Board's short-interest ratio -- sometimes considered a contrarian indicator, as short-interest shares eventually must be purchased -- rose to 6.66 from 5.83 in the previous trading period. The short-interest ratio is the number of trading days at the exchange's average daily trading volume required to convert the total short-interest position.
The average short seller was down about 4% through November, but so far December is "looking positive," according to Harry Strunk, a Palm Beach, Fla. investment adviser and stockbroker. "Short sellers have recently been encouraged by earnings disappointments and some expect to remain positive through the first quarter of next year," says Mr. Strunk.
Given the long running bull market, Mr. Strunk notes it will be interesting to see whether short sellers end the year in positive territory, saying a negative year would mark the third consecutive such one for the average short seller.
Average daily Big Board volume was 550,584,885 shares, down from 609,885,830 shares in the previous month. Short positions were calculated for the month including the 21 trading days through Dec. 10.
The next Big Board short-interest report will be published Jan. 23.
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