A repost of a little bit of analysis that I did over on the Freeforums board.
I should have titled it: "Shorts are Essentially Powerless"
Check it out - shows that there's not much correlation between rise / fall in short interest and share price. It's random - half the time there's a positive relationship, half the time there's an inverse relationship. Shows that shorts are not "in control" and that they have very little influence.
Hey, I'll stop griping abt stuff (for this post at least) and contribute some net new knowledge:
Short sellers are scum of the earth. They control the share price. They control the Vertical. They control the horizontal. They want children to go without Afrezza.
Short sellers coordinate their actions to blunt every pop.
I hope they get diabetes and need Afrezza.
Rolling your eyes yet? Well, the only stuff I made up was the Outer Limits reference. Other than that, these sentiments are daily spread around message boards. Short selling is blamed for many vices and misfortunes, but is it so?
I decided to take a look at the numbers, no knowing what I would find
Attachment DeletedIf "The Shorts keep adding in order to keep the price down" then there should be an inverse relationship between change in SI and change in share price. That is to say, if more shorts are initiated than are covered, then the share price should take a hit. > SI in a period should result in < share price, right?
I calculated the move in SI as a % of total volume and % change in SP for each period. Makes sense to weight the SI change, since a 2M change in SI in a thinly traded period should have a greater effect than in a heavily traded period. I gave the benefit of the doubt to the "Shorts keep the price down" theory by doing this, since it almost presupposes that there _should_ be an effect and attempts to amplify that signal.
Well, check it out:
Attachment DeletedOut of 19 periods:
10 Show a positive correlation (SI up, SP up. SI down, SP down)
9 Show a negative correlation (SI up, SP down, SI down, SP up)
The chart is telling as well - it's just a drunken walk. There's no connection.
Also, look at the final column in the Excel file - the increase in SI as a % of all shares traded in the period. With a very few exceptions, it's quite a small number.
What do YOU think leads to a blunting of upward moves? 3 - 5% of volume in shorting or profit taking mixed in with the other 95% of the volume?
Feel free to play around with the numbers. Might be fun to map moves to events. For example that 9% reduction in SI in October coincided with warrant redemption. Makes sense. Many short sellers were hedged with warrants and completed their trade when the warrants expired. They redeemed the warrants and used the shares to cover their short.
A postscript from a different post:
It's probably apparent that I have little but disdain for pumpers and bashers alike. What we're talking about in both cases are not longs or shorts, they're simply fraudsters talking their book.
Rationality is kind of boring and it irritates people some times, but whenever you are able to discount falseshood, distortion or superstition, you get an advantage.
An example:
Let's you're playing 6-deck blackjack and let's say many people believe that the shoe is loaded with high cards. Let's also say that you have seen through this rumor by watching the card distribution through a few shoes - you see that on average the count is even. You now have mathematical proof. You tell a few folks what you've determined while at the casino's bar - they say "1. You're wrong - everybody knows this casino rigs their 6-deck shoe. 2. It's great! You'll always have a high count going into a shoe. Double down, baby! 3. You're just a wet blanket trying to get me off my hot streak. I should tell the casino that you're counting cards."
Apart from the fact that a casino would never knowingly rig their cards against the house by adding high cards, you actually have proof that others refuse to believe. How does that help you? Well, when you get a 16 vs a dealer's face card what do you do? Well, if you falsely believe the deck is stacked with high cards you'll stand pat and lose 80% of the time against the house. If you know the deck is fair, you'll hit and lose 70% of the time. You're in a tough situation either way, but losing less often than the other guy puts you at an advantage.
How about with stocks? What if you think a stock's price will be stable over a 6-month period when some others think it's going "to the moooooonnnn sheeple!" Well, if enough investors have that kind of enthusiasm, you can probably write calls on your shares and get paid to wait. Now you're the casino with players making crazy decisions because they think you are being silly by selling calls so cheap, when in fact they're very expensive. Extra return for you!