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Thursday
Jul112013

Short Covering Rally?

We have heard a number of people call today's gain in the market a short-covering rally.  Looking at the actual performance of stocks based on short interest, however, suggests otherwise.  We divided the S&P 1500 into deciles based on each stock's short interest as a percentage of float.  So far today, the 150 stocks with the highest short interest are up an average of 0.96%, which is only slightly ahead of the average return for all 1500 stocks in the index (0.95%).  Additionally, the three deciles with the highest short interest are up an average of 0.85% today, while the three deciles of stocks with the lowest short interest are up 1.05%.  These kind of returns hardly indicate that shorts are scrambling to cover.