Bearish stock bets on the climb

April 13, 2011 - 0:0

Short selling rose at the New York Stock Exchange and at the Nasdaq Stock Market during the second half of March.

In the exchanges' latest twice-a-month statistics, for the period ended March 31, the number of short-selling positions at the NYSE not yet closed out, known as short interest, increased 0.85%. The positions stood at 12,643,943,208 shares from a revised 12,537,409,289 shares in the period ended March 15.
On Nasdaq, short interest increased 1.60% to 6,668,223,829 shares from 6,563,218,369 shares over the same period.
""The recent reporting period continued a typical pattern; short sellers are increasing their short positions as stocks rise and valuations grow larger,"" said Eric Newman, portfolio manager at TFS Capital in West Chester, Pa.
""However, even after this increase, overall levels of short interest remain very low by historical standards,"" said Mr. Newman. The Data Explorers US Equity LongShort ratio, which shows whether the market is getting more or less short, was 12.73 as of April 7, a six-year high above the previous record of 12.48 set March 30. This means there are almost 13 times more longs, or bets that stocks will rise, in the market than shorts.
The ratio, computed each business day, looks at the value of stock on loan, a proxy for short-selling activity which stands at $305 billion. This is contrasted with the value of stock available to be borrowed, at $3.89 trillion as of April 7.
""Despite the U.S. market getting longer, we continue to see negative investor sentiment towards consumer durables and apparel and automobiles and components,"" said Will Duff Gordon, research director, at Data Explorers, in London.
Rounding out the top five most shorted North American sectors listed in order, according to Data Explorers, are commercial services and supplies, banks and real estate. GICS industry classifications were used in computing this data.
Short-sellers weren't clamoring to place bets gold.
""With the price of gold reaching a new high last week, short sellers have more than halved their short positions in the most popular gold ETF, SPDR Gold Trust since early March,"" said Mr. Duff Gordon.
The percentage of SPDR Gold shares outstanding on loan fell to 1.01% on April 8 from 2.75% on March 1, according to Data Explorers. SPDR Gold shares closed at $143.02, down 1.02, or 0.71%. Data Explorers tracks stock loan data which differs from public filings of short positions made in the U.S.
Over the period covered by the latest short-interest report, the Dow Jones Industrial Average gained 464.31 points, or 3.92%. The Nasdaq Composite Index climbed 113.74 points, or 4.26%.
Investors who short shares borrow and sell them, betting that share prices will fall and that they can buy them back at a lower price for return to the lender. Stocks can also be shorted for reasons other than bearish bets, including hedging strategies.
In the first half of March, short-selling levels fell to 12.5 billion shares, or 0.58%, at the New York Stock Exchange and rose to 6.6 billion shares, or 0.87%, at the Nasdaq Stock Market.
Marketwide, the short ratio, or the number of days' average volume represented by outstanding short positions, rose to 3.5 days, from a revised 3.2 days, at Nasdaq in mid-March.
The short ratio on the NYSE increased to 3.0 days from a revised 2.8 days during the same period. The Wall Street Journal uses average daily composite volume to calculate the short ratio.
Although a substantial short position reflects heavy speculation that a stock's price will decline, some investors consider an increase in short interest to be potentially positive because the borrowed shares eventually must be bought back.
The next short-interest report is scheduled to appear in The Wall Street Journal on April 28.