Interested in Short Interest?
Short interest is the total amount of shares of a stock that have been sold short
relative to the total amount of shares outstanding.
This market sentiment indicator has a strong predictive power and delivers high utility gains, especially during recessions.
You will see this indicator used under the following terms:
Float short: The percentage of shares in the market that are shorted in relation to all shares in a float (total share outstanding). If the market/stock is already at a peak and hits the 30% threshold then it may be time to question your position/investigate the reason behind bearishness/start thinking of shorting the stock as well.
Short ratio/Days to cover ratio: The number of shares sold short divided by the average daily trading volume. It is also referred to as the 'days to cover' ratio because it tells approximately how many days it will take short-sellers to cover their positions if good news sends the price higher.
The higher the ratio, the longer it would take to buy back the 'sold' (borrowed) shares. And in theory, the more short positions there are to cover, the stronger the short covering rally would be.
Both metrics are useful for short squeeze/long squeeze strategies.
Whether you agree with the overall sentiment or not, it is a data point used by fundamental and technical traders worth adding to your overall stock analysis!
Short Interest Effect – Long-Short Version High short interest stocks
Short Interest: Explanations and Tests (Averil Brent, Dale Morse and E. Kay Stice)