Was That a Short-Covering Rally?

Was today real buying or short covering? As shown below, today's best performing stocks in the S&P 500 were also the ones with the highest short interest as a percentage of float. On the other hand, stocks with the lowest short interest underperformed:

Comments

[Richard Shi...:]

Nah,

The fundamentals have changed. The Fed is on top of it, no inflation, no recession, and everybody is getting a check in a few weeks. Stupid shorts.

2008 Mar 18 08:28 PM

[toots:]

I think that it is a very interesting plot.

Fundamentals have not changed. Homeowners are still struggling to make mortgage payments. Increasing inflation only makes that worse.

2008 Mar 18 08:38 PM

[jcrash:]

No, it wasn't. The Vix dropped way down. This was a fundamentally different rally.

2008 Mar 18 08:47 PM

[damienhaas:]

One day and everyone come to a conclusion. Let see how the Housing Market pan out. If the price is dropping and bank tightening on consumer credit, It is not sure that the market will rally in the long term.

2008 Mar 18 09:43 PM

[lcstech:]

Dollar and strength are still not used in the same sentence anywhere on the globe. Where I live Diesel is $4/gallon and that impacts trucking costs,etc, which impacts cost of goods. Those with "zero equity" mortgages are putting "For Sale" signs up in every new Burb I drive past on the way to work. If this isn't a "sucker's rally" then I guess BSC will get back up to $100 / share...right !

2008 Mar 18 11:12 PM

[Fighting Yoda:]

It was part short covering, part Fed inspired. But most of all it would prove to be bear market sucker rally. We had so many of them in the last 6 months. Lot of bad news still to come and Fed has run out of ammo.

Will short when the euphoria dies in a day or two.

2008 Mar 19 12:36 AM

[Contra-Indi...:]

"On the other hand, stocks with the lowest short interest underperformed"

Up 3% is under-performing?
Maybe I misunderstood your meaning. If low short-interest-stocks had moved less than 1% I would have agreed.

Regardless, I would agree with anyone that this is a bear-trap. We'll have a few up days (one or three percent more), but until another shoe drops (big negative headline), or until the Fed explicitly backstops FNM &/or FRE the real rally cannot start.

2008 Mar 19 12:54 AM

[Saint Xinon:]

Will buy as if this is double bottom and beginning of greatest bull market in the galaxy.... Will short when the euphoria dies on Monday after Visa IPO and quad witching....

2008 Mar 19 01:14 AM

[tradersyste...:]

That short interest performance calculator is a useful tool.... Where can I get one?

2008 Mar 19 01:32 AM

[Rabbito:]

I dont understand how lower interest rates or bank bail outs would lead someone to conclude that we are headed for a new bull market

2008 Mar 19 01:33 AM

[Rabbito:]

I was thinking of short BSC tomorrow, any thoughts out there?

2008 Mar 19 01:34 AM

[TM:]

I would bet it was a combination of both, but we should continue to see some buying, unless of course there is some surprise news. Don't forget both Lehman and Goldman beat expectations, and this was after Lehman was all but left for dead; this was the big driver yesterday the Fed just helped.

2008 Mar 19 01:42 AM

[TM:]

I was looking at some of the BSC puts, but don't think I will make a move since I can't really put my finger and what is driving BSC stock higher. I have heard all kinds of speculation, but I would really like to know who is doing the buying first.

2008 Mar 19 01:43 AM

[Vikram Saxena:]

Clearly, short covering is always a factor in Bear Market rallys. What is interesting is that this was a bimodal move. There was short covering AND there was genuine buying as the hump on the right side of the chart indicates.

There is no doubt that the game has changed. The Fed and Treasury are now swinging. That provides a short term floor.

2008 Mar 19 04:24 AM

[Matt Blackman:]

Vikram, there you go again picking a bottom. Sure there is a floor but not today. Any floors since late October have proven wobbly at best. The Dow is down another 230 points as we head into the close today.

You must have a knife-proof kevlar vest (or a teflon portfolio) given all your trying to catch the falling knife efforts... ;-O

2008 Mar 19 03:48 PM

[basile:]

TM, the Bond Holders are buying the common in an effort to vote in favor of the takeover.

2008 Mar 19 04:20 PM