Short Covering

Wednesday's strong turnaround was attributed to several factors: Fed cut, bond insurers, dead cat bounce... Based on one measure it seems like some of the bigger players in the game were re-balancing their portfolios. The chart below divides the S&P 500 in ten groups based on short interest as a percentage of shares outstanding. As shown, the fifty stocks with the largest short interest rose 8.80% on average yesterday, while those with the fewest shares sold short rose only 1.35%.

Birinyi Associates has pointed out on many occasions that the implications of short selling are now very significant. Since the regulatory change on 7/6/07, volatility by several measures has increased, and money flows for many issues have turned negative highlighting the negative impact of short selling.