Bearish Stock Bets on the Climb
Short-selling rose at the New York Stock Exchange and the Nasdaq Stock Market during the second half of May.
In the exchanges' latest twice-a-month statistics, this time for the period ended May 31, the number of short-selling positions at the NYSE not yet closed out, known as short interest, increased 2.17%. The positions stood at 13,223,243,418 shares from a revised 12,942,801,346 shares in the period ended May 13.
On Nasdaq, short interest increased 3.41% to 7,249,114,398 shares from 7,010,229,009 shares, over the same period.
"During the recovery, we've seen a risk on and risk off of asset classes similar to a tide coming in and out," said Todger Strunk, senior analyst at Strunk Short Index in Palm Beach Gardens, Fla.
"Right now, we're seeing risk off beginning in light of the Fed's stimulus ending in June which will remove artificial support for equity market growth," Mr. Strunk said.
The Data Explorers U.S. Equity LongShort ratio, which shows whether the market is getting more or less short, stood at 12.85 on June 7. The ratio is off its six year high of 13.30 recorded on May 12, meaning that there are almost 13 times more longs in the market than shorts.
The ratio, computed each business day, looks at the value of stock on loan, a proxy for short-selling activity, which stands at $292 billion. This is contrasted with the value of stock available to be borrowed, at $3.75 trillion. Both figures are as of June 7.
"The market is getting shorter with stocks within the software and services sector dominating the list of companies seeing a fresh annual high in short interest," said Will Duff Gordon, research director, at Data Explorers, in London.
According to Data Explorers data, negative sentiment was highest in the consumer durables and apparel sector, followed by commercial services and supplies and automobiles and components.
"There was strong demand to short shares of LinkedIn Corp., since its flotation at the end of May, and the other major theme was, we have seen short interest in Chinese stocks listed in the US increase by over 50% since the middle of April," said Mr. Duff Gordon.
Data Explorers data shows over 6% of the total shares of Chinese stocks listed in the US are currently out on loan. The figure for LinkedIn, is 14% of the free float. LinkedIn declined to comment.
Over the period covered by the latest short-interest report, the Dow Jones Industrial Average fell 25.96 points, or 0.21%. The Nasdaq Composite Index increased 6.83 points, or 0.24%.
Investors who short shares borrow and sell them, betting that share prices will fall and that they can buy them back at a lower price for return to the lender. Stocks can also be shorted for reasons other than bearish bets, including hedging strategies.
In the first half of May, short-selling levels fell to 12.9 billion shares, or 0.85%, at the New York Stock Exchange and rose to 7 billion shares, or 1.92%, at the Nasdaq Stock Market.
Marketwide, the short ratio, or the number of days' average volume represented by outstanding short positions, rose to 3.8 days from a revised 3.4 days, at Nasdaq, in mid-May.
The short ratio on the NYSE rose to 3.7 days from a revised 3.2 days during the same period. The Wall Street Journal uses average daily composite volume to calculate the short ratio.
Although a substantial short position reflects heavy speculation that a stock's price will decline, some investors consider an increase in short interest to be potentially positive because the borrowed shares eventually must be bought back.
The next short-interest report is scheduled to appear in The Wall Street Journal on June 25.
SOURCE : http://goo.gl/HDr8R
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