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The average stock in the S&P 500 rose 3.17% yesterday. Throughout the day and after the bell, all the talk was that it was nothing but a short covering rally. In reality, it was a more of a loser's bounce than anything.

In the first chart below, we have broken the S&P 500 into deciles (10 groups of 50 stocks each) based on stock performance from the 10/28 market high through last Friday's close. We then calculate the average performance yesterday for the stocks in each decile. As shown, the 50 stocks that were down the most during the 10/28-11/25 pullback averaged a gain of 4.9% yesterday, which was by far the best performing decile. The 50 stocks that held up the best from 10/28-11/25 were only up an average of 2% yesterday.

In the second chart, we have broken the S&P 500 into deciles based on a stock's short interest as a percentage of float. Using the same scale on the y-axis as we did for the first chart, the decile performance hardly stands out. The most heavily shorted stocks did outperform the least heavily shorted stocks yesterday, but the difference was minimal compared to the best and worst deciles in the first chart.

click to enlarge

Source: A Short Covering Rally?