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Since early August, the NYSE Short Interest Ratio has been steadily climbing as the market has moved higher. As of Friday, the NYSE Short Interest hit 21.51, a five-year high. I prefer to take a contrarian view with this data point. Sometimes the market gets very interesting when sentiment is at its worst. When there is a divergence between the technical action and investor sentiment, at some point the sentiment has to shift. (That is why we consider the charts first). The market is holding its recent gains from Thursday and Friday very well, and there are many good looking chart patterns on our leaders lists. Those shorting here are in a tough position. As the strength continues and becomes more obvious, many will be forced to reverse their decisions.
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Thanks, as always, Scott. We have been discussing this every two weeks at our IBD Meetup. I am curious, what is the highest NYSE Short Interest ratio you ever remember seeing? How reliable a contrarian indicator do you feel it is when it gets to these extremes? Enough to over come historically poor equity market performance in September? Have you ever seen it this high in September before? Just curious. Brad
I can’t recall the highest Short Interest I’ve seen. But I know from experience that it’s usually a very reliable contrarian indicator at extremes. And that is something I confirmed with Bill recently. Couple that with what we are seeing in the charts and my interpretation is that I want to be invested around 70% to 80%. Then I’ll see if my equity can get real traction.
Thanks Scott for your commentary - - I have been abiding by your initial advice (getting in "incrementally"), NOT jumping in all at once. I have been gradually getting my bankroll invested to now around 50%, but have been waiting to see more conviction in price action. Currently I am in 6 stocks (2-3 buy lots per Level II course) but am starting to think that at least 2 of those stocks may NOT be the strongest relatively speaking. So do you recommend consolidating my $ into 2-4 stronger stocks, even at 70-80% of my portfolio amount? Appreciate any advice.
... I also wonder if the SHORTS are making the price action more negative for some of the weaker stocks or stocks traded in lighter volume - - just a thought.
I enjoyed The New Jersey session. I'm more cautious going into this market. I am 20% invested. Even though we had a good run. I would like to see more good companies hitting buy points. Holdings RYL,V,SHW,ALXN,CELG,and TCBI.
bears vs. bulls @ high level,high short interest,mutual fund redemptions very strong(the typical investor is usually wrong about the markets direction) and low put/call ratio(a bearish signal-however, it has improved recently) are all signs of a possible market topping.How do you interpret this?
@rjcastorena: In today’s webinar I said that I prefer to force feed the cash from slower stocks into my best positions – rather than initiate new positions with that cash.
@ ninetydegr: Short Interest and the other indicators are important as long as it support your market analysis. But all indicators are secondary indicators to your interpretation of the daily market action.
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