Bearish Bets Fall on NYSE and Nasdaq

Posted by Ian Cooper - Wednesday, November 10th, 2010

From The Wall Street Journal:

"Short-selling fell at the New York Stock Exchange and at the Nasdaq Stock Market during the second half of October.

A discovery of erroneous data shortly before 4 p.m. EST briefly forced the Nasdaq to put a hold on a news release Tuesday that was distributed to the media. The release, which summarizes data reported by brokerage firms to the Financial Industry Regulatory Authority, is distributed in advance to the media and embargoed until 4 p.m. The hold was lifted 75 minutes later with no change to the data.

In the exchanges' latest twice-a-month statistics, this time for the period ended Oct. 29, the number of short-selling positions at the NYSE not yet closed out, known as short interest, decreased 2%. The positions stood at 13,781,076,039 shares from a revised 14,063,016,249 shares in the period ended Oct. 15.

On Nasdaq, short interest decreased 2.15% to 7,032,192,603 shares from 7,186,659,442 shares, over the same period.

"Erroneous data for four securities out of a total of 2,872" caused the glitch, said a Nasdaq spokesman.

"September and October were strong months for the market which hurt short-sellers," said Harry Strunk, principal of Aspen Grove Capital Management in West Palm Beach, Fla. Mr. Strunk dissolved his minority ownership in Treflie Capital Management at the end of September.

According to Mr. Strunk, short-sellers were down 9.5% in September. Mr. Strunk is estimating they will be off in the 3% range for October. For the year through September, short sellers are down 10.7%.

Over the period covered by the latest short-interest report, the Dow Jones Industrial Average rose 55.71 points, or 0.5%. The Nasdaq Composite Index increased 38.64 points, or 1.57%.

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 Oct., short-selling levels fell to 14.1 billion shares, or 1.81%, at the NYSE and to 7.2 billion shares, or 5.17%, on Nasdaq. Marketwide, the short ratio, or the number of days' average volume represented by outstanding short positions, remained unchanged at 3.6 days at Nasdaq from mid-October.

The short ratio on the NYSE remained unchanged at 3.1 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."

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