Nothing More Than a Short Covering Rally

From the 1/22 bottom through yesterday, the average stock in the S&P 500 was up 8.96%. We broke the index into deciles (50 stocks in each decile) based on each stock's short interest as a percentage of float and then calculated the average percent change of each decile from 1/22 to 2/4. As shown below, the decile of stocks with the highest short interest was up a whopping 17.1% from the bottom, while the decile of stocks with the lowest short interest was only up 5.3%.

This analysis clearly highlights that the most recent gains have come from large amounts of short covering.

click to enlarge

Comments

[US:]

The analysis may be accurate but the conclusion is not definitive. Maybe the high short interest stocks were higher % decliners leading up to 22-Jan-08 & therefore the most oversold stocks, rebounded the most. Before making the conclusion in the article, the same deciles performance leading up to 22-Jan-08, would 1st need to be analyzed.

2008 Feb 05 04:05 PM

[Richard Shi...:]

Ok, now tell me what happens the next 5 days. Thanks.

2008 Feb 05 09:41 PM

[vodka_tonic:]

US good point, but many facets such as the one you have pointed out can be added to this analysis.

2008 Feb 05 10:56 PM