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Short Interest Spike Presages Furious Sell-Off and Rally

Posted By Barry Ritholtz On October 21, 2005 @ 12:03 pm In Psychology,Technical Analysis,Trading | Comments Disabled

For nimble traders only:  The last time the New York Stock Exchange short interest ratio broke below a key trendline, the U.S. equity market had a short and sharp selloff — one that was later followed by a major upside blow-off

The gray area on the chart is SPX; Blue line is NYSE short interest:

  click for larger chart
Shortinterestspx [1]

Source: Michael
, Rabo Securities USA


On the basis of monthly short interest data for the period ending October 14th (released yesterday by the NYSE) and average daily volume for the first two weeks of the month, the most recent SI reported works out to approximately 4.74 days.

That is the lowest level since January 2004. This places a measure below a major uptrend dating back to the September 2001 lows.

asks: "Time for deja vu all over again?"

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[1] Image: http://bigpicture.typepad.com/.shared/image.html?/photos/uncategorized/shortinterestspx.jpg

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