• Chartist Corner: Why The Drop In Short Interest Is A Good Sign

    by  • January 18, 2013 11:57 am • Chartist Corner, Charts to Watch, Quick Hits • 0 Comments

    The action in short interest is rather interesting.

    I’ve been saying for months now that short interest on all optionable equities (about 2,600 in our DB) has been very high.  This suggests there are still a good deal of shorts out there that could be forced to cover as we move higher.  In other words, yes price might ‘look’ high – yet a deeper look shows there is potentially massive buying pressure.

    Well, the shorts look like they are starting to capitulate.  According to the recent data, total short interest fell 4.85% and is now down 9.7% from its June ’12 peak.

    What I like about the chart above is historically a lower trending short interest has been rather bullish for the SPX.  Take note, higher trending short interest is usually bearish for the SPX.  So here we have an indicator that has been right on both sides of the SPX action, gotta like that.  You have to love the fact we have a firmly lower trend in place, yet, there is still plenty of room for it to drop before it gets near the lows of last year.

    In other words, yes, we are making five year highs – yet, there very well could be plenty of buying pressure even at these levels.




    Ryan Detrick is the Senior Technical Strategist at Schaeffer's Investment Research in Cincinnati, Ohio. He joined Schaeffer’s in 2003 and is a frequent speaker and writer on stock market and economic issues and is widely sought after by financial media for his expertise and commentary. Mr. Detrick is a common guest on CNBC, Fox Business, and Bloomberg Television and has been quoted in outlets such as The Wall Street Journal, BusinessWeek, USA Today, Reuters, the Associated Press, and others. With a decade of financial industry experience in the investment and financial services area, strengths include short-term trading with an eye toward timely technical- and sentiment-based trading opportunities, and advanced option trading strategies. Mr. Detrick received a BA in finance from Xavier University, an MBA in finance from Miami University, and has earned his Chartered Market Technician (CMT).


    Leave a Reply