15 replies to this topic

[mortiz]

Paul,

Without a doubt, it is the institutions responsible for the vast majority of the shorting of NYSE issues, due to the sheer magnitude of the current short interest and by examining the actual daily retail customer volume, which is a very small percentage of the total NYSE daily volume.

However, regardless of who is sitting on all of these outstanding shorts, short interest ratios of the magnitude currently in place are not historically an overwhelmingly profitable venture for the bears over the coming months as the below chart suggests.

In the short term, yes, I'm sure bears will make money shorting particular issues and ETFs, but sitting on short positions for several months will likely not result in a rewarding outcome if historical precedent is any guide.



Of course, this time could be different, every time is different.

FWIW

Randy N.

[arbman]

First, we do not know how much the removal of the uptick rule is responsible in the abrupt changes in the odd-lot shorting. The odd-lot short selling reports the amount of selling during the day, not necessarily how many shares they took home, right? Mortiz, the other issue that's conflicting with this picture is the dollar costs of the calls and puts as well as the premiums paid in the equity options. These are at the alarming levels. The index options guys are going aggressively long AND short, but the premiums are significantly higher for calls. The participants are definitely speculating both long and short, very selectively. Perhaps recently, people went long the tech firms and short the financials. The more the hedge fund activities increase, the more we see these distortions away from the historical norms, imho... - kisa

[Rogerdodger]

I just can't believe the shorting rule change would have that much effect now. The rule was partially lifted some time ago without effect. Also it's much easier to short with all the new short etfs since often in the past brokers would not even have supply of shortable stocks. Much ado about nothing, me thinks. TWT

[arbman]

Also it's much easier to short with all the new short etfs since often in the past brokers would not even have supply of shortable stocks.

No, the odd-lot short selling and the total short interest ratio in the markets have nothing to do with each other.

It is just that the distortions and some of the recent extreme readings in the tick and odd-lot short selling activity might have to do with the removal of the uptick rule combined with the wider swings...

The market looks ST oversold as much as it was overbought a few days ago, regardless of the odd-lots or tick, but based on the trin, A/D volume ratios...

- kisa

Edited by kisacik, 22 July 2007 - 12:08 PM.

[Rogerdodger]

It is just that the distortions and some of the recent extreme readings in the tick and odd-lot short selling activity might have to do with the removal of the uptick rule combined with the wider swings...

Or it could be the thick bearish sentiment and wall of worry that's been pervasive all year as the market rallied.
I think the market stinks. But it seems like I'm in a large crowd.

[arbman]

Or it could be the thick bearish sentiment and wall of worry that's been pervasive all year as the market rallied.
I think the market stinks. But it seems like I'm in a large crowd.

Actually the bullishness is definitely near the extremes, 2 wks in a row, the market will fix this before moving forward. You will see that any upside test early this week will meet a lot of call buying again, I think the crowd is a lot more conditioned to buy at the moment than this board reflects. Any hesitation with the downside should trigger the bears to run to the exits. This board is the most bearish board on the planet probably.

Check these out;

The equity options are very frothy now, the premiums paid are deeper in the money for calls...





The index option guys are going aggressive in both directions, but they pay less premiums in the puts...





- kisa