Short-sellers were pulling back even before Reddit’s GameStop squeeze

marketwatch2021-02-03

Short-sellers in GameStopGME,-60.00%and other targeted stocks have been beaten up recently, but short-selling may be helping to keep the bull market alive. Short-selling, according to academic ...

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Comments

AlanYe
2021-02-04
AlanYe
Good read
kenntan
2021-02-03
kenntan
Ggwp
Basketrif
2021-02-03
Basketrif
Dont play w retailers
Ewald
2021-02-03
Ewald
Can hold?
WadeW
2021-02-03
WadeW
Will it not be bubble?
KydenC
2021-02-03
KydenC
Hold the line!

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Right now, short interest is unusually low, says Matthew Ringgenberg, a finance professor at the University of Utah.\nRinggenberg is a leading expert on the behavior of short sellers. In an interview, he observed: “Even before the recent short squeezes, short interest in December and January was approaching historically low levels. In fact, with the exception of December 2018, this is the lowest short interest has been since before the 2008 crisis.” The data to which he is referring are plotted in the chart below.\nBe wary of contrarian investors who interpret low short interest as bearish. Ringgenberg says the contrarians are wrong; his research has found that the short sellers on balance are more right than not.\nNote carefully that the chart focuses on the raw short interest ratio. As I have reported in prior columns about Ringgenberg’s research, he has found that the predictive power of the ratio can be improved by calculating where it stands relative to its underlying trend. This adjusted ratio, he adds, is even more bullish than the raw unadjusted ratio.\nNote also that the investment horizon for which this adjusted ratio has shown explanatory power is 12 months. So even if the current prediction is spot-on, it tells us nothing about the path the market takes along the way. It could be, for example, that the S&P 500SPX,+1.39%is higher in 12 months while suffering a steep decline along the way. That’s what happened over the past year.\nOne big caveat\nRinggenberg says that on rare occasions, short sellers are particularly bearish but nevertheless choose not to aggressively sell short. This occurs most typically when investor sentiment is exuberant, the market is volatile, and when certain stocks are trading without any discernible relationship to their underlying fundamentals. During such times, he said, the already-high risks that short sellers face grow to intolerable levels—and many of them retreat to the sidelines.\nI mentioned this phenomenon, referred to as the “limits to arbitrage,” in acolumn last week about the GameStop saga. Perhaps the most prominent historical example of it came at the end of the internet bubble when a number of dot-com companies with no assets, revenue or business plan were propelled to sky-high valuations. The short interest ratio actually declined from 1998 through 2000 despite ever-rising valuations.\nThere are some who currently believe we’re in a bubble similar to the late 1990s. If they’re right, then we should not make too much of short sellers’ lack of aggressiveness. Absent that possibility, the message of the short-sale ratio is bullish for the next 12 months.","kind":null,"is_publish_news":true,"is_publish_highlight":true,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[{"id":317081168,"gmtCreate":1612397875954,"gmtModify":1704870607356,"author":{"id":"3563407973348151","authorId":"3563407973348151","name":"AlanYe","avatar":"https://static.tigerbbs.com/50efd00e3a7df7e0920a04606904a662","vip":1,"hat":"https://static.tigerbbs.com/306aa047bc14b6942cda1aed925cf8c3","crmLevel":7,"crmLevelSwitch":1,"authorIdStr":"3563407973348151","idStr":"3563407973348151"},"htmlText":"Good read","listText":"Good read","text":"Good read","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":0,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/317081168","repostId":1172237562,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":314853308,"gmtCreate":1612336069404,"gmtModify":1704869856773,"author":{"id":"3573534203095145","authorId":"3573534203095145","name":"kenntan","avatar":"https://static.tigerbbs.com/390706ad7d648add89ec3fb5ea5931ef","vip":1,"crmLevel":2,"crmLevelSwitch":0,"authorIdStr":"3573534203095145","idStr":"3573534203095145"},"htmlText":"Ggwp","listText":"Ggwp","text":"Ggwp","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":0,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/314853308","repostId":1172237562,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":314827414,"gmtCreate":1612335685138,"gmtModify":1704869853220,"author":{"id":"3574715322913604","authorId":"3574715322913604","name":"Basketrif","avatar":"https://static.tigerbbs.com/47bde0946b4de3845bcba22c002e0cfd","vip":1,"crmLevel":9,"crmLevelSwitch":1,"authorIdStr":"3574715322913604","idStr":"3574715322913604"},"htmlText":"Dont play w retailers","listText":"Dont play w retailers","text":"Dont play w retailers","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":0,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/314827414","repostId":1172237562,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":314827969,"gmtCreate":1612335596851,"gmtModify":1704869852574,"author":{"id":"3573788355724268","authorId":"3573788355724268","name":"Ewald","avatar":"https://static.tigerbbs.com/60c8eb8db3c825e3fdeb89353eacb524","vip":1,"crmLevel":2,"crmLevelSwitch":0,"authorIdStr":"3573788355724268","idStr":"3573788355724268"},"htmlText":"Can hold?&nbsp;","listText":"Can hold?&nbsp;","text":"Can hold?","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":0,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/314827969","repostId":1172237562,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":314823079,"gmtCreate":1612334476991,"gmtModify":1704869842159,"author":{"id":"3574770700496796","authorId":"3574770700496796","name":"WadeW","avatar":"https://static.tigerbbs.com/515948ceeb9bc7c8764d485f743405e0","vip":1,"crmLevel":2,"crmLevelSwitch":0,"authorIdStr":"3574770700496796","idStr":"3574770700496796"},"htmlText":"Will it not be bubble?","listText":"Will it not be bubble?","text":"Will it not be bubble?","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":1,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/314823079","repostId":1172237562,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":314813732,"gmtCreate":1612330410626,"gmtModify":1704869804383,"author":{"id":"3568891514747061","authorId":"3568891514747061","name":"KydenC","avatar":"https://static.tigerbbs.com/80d84946aef477bc8aa11431b6dd130d","vip":1,"crmLevel":2,"crmLevelSwitch":0,"authorIdStr":"3568891514747061","idStr":"3568891514747061"},"htmlText":"Hold the line!&nbsp;","listText":"Hold the line!&nbsp;","text":"Hold the line!","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":1,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/314813732","repostId":1172237562,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"}],"isCommentEnd":false,"newsSizeData":{"likeSize":29,"commentSize":22,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; 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