Selling short is a popular method of profiting when stock prices fall and many investors have made tidy profits of betting against a company.
In fact, it has become such a significant portion of the market that stock exchanges now track and report the amount of shares sold short in most stocks. Here is a quick tutorial on short interest stock.
High/rising level of short interest = Stock is anticipated to drop
Low/declining level of short interest = Stock is anticipated to rise
Notice, this doesn't indicate when or how high or low the stock is expected to go. In fact, it doesn't mean it will rise or decline as expected. It is best used to track buyer sentiment and market psychology rather than as a predictive tool. Of course, you can always take a contrarian stance and bet against the nay-sayers.
To find short interest data begin with NASDAQ and the NYSE; both provide short interest data for the past 12 months. Pay attention to the following:
- Number of shares shorted
- Days to cover
- The short position as a percentage of float