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Short Sales Statistics

The NYSE Short Interest Ratio

Every short seller anticipates a declining stock market. Investors sell short stock when they anticipate its price going lower. Sooner or later they must cover their short sales by buying back the stock. A profit is made if the stock is bought back at a lower price than when it was sold short. Indicators based on short selling statistics are an important part of technical analysis. Daily and weekly short sales are reported by the NYSE and published by financial sites all over the Internet. Market technicians watch the short selling activities of all the market participants very carefully. They distinguish between the odd-lots and the general public, the so called crowd, and the well informed NYSE members, specialists, floor traders and corporate insiders. When a large amount of short selling activity is occurring, market participants obviously expect prices to head lower.

The NYSE Short Interest Ratio is therefore a long-term contrary opinion sentiment indicator. It is calculated by dividing the monthly short interest figure released by the New York Stock Exchange by the average volume of trading per day. These numbers get sometimes distorted by arbitrage transactions, but the short interest ratio is nevertheless a good indicator of optimism or pessimism in the market. Short sellers are potential buyers sooner or later and represent a lot of buying power when they have to scramble for cover in a sudden market turn. Contrary indicators require at least some degree of pessimism in order to function and therefore you should watch this ratio very carefully.

Odd-Lot Short Sales Ratio

The Odd-Lot Short Sales Ratio is calculated by dividing odd-lot short sales by the total number of short sales. For stocks, the generally accepted unit of trading is 100 shares (round lot). The Odd -Lot Short Ratio indicates the market sentiment of small investors who purchase less than 100 shares of a stock (odd-lot). These market participants are usually wrong about the direction of the market and this indicator is therefore considered to be a contrary opinion sentiment indicator.

Floor Traders Short Sales Ratio

The Floor Traders Short Sales Ratio is computed by dividing the total floor traders short sales by total short sales. A moving average should be applied to smooth out the swings. Floor traders are normally right about the trend of the market and if they are shorting heavily the market is usually ripe for a correction. On the other hand, if they are doing relatively little shorting it is most likely that the market has hit bottom, especially if public- and odd-lot short sales increase at the same time.

Specialist Short Sales Ratio

Specialists are responsible for balancing incoming buy and sell orders to maintain orderly markets in the stocks in which they specialize. The Specialist Short Sales Ratio is computed by dividing the total specialist short sales by total short sales. A moving average should be applied to smooth out the swings. Specialists are normally right about the trend of the market and if they are shorting heavily the market is usually ripe for a correction. On the other hand, if they are doing relatively little shorting it is most likely that the market has hit bottom, especially if public- and odd-lot short sales increase at the same time.