Short Sale Data
Short sale data is one of the important indicators used in analyzing stocks, which can help investors get a handle on the market sentiment or the potential performance of a stock. In fact, long sellers can also track short sale data to avoid investing in stocks with a potential downward trend. For short-sellers, they can keep tabs on stocks with a high short sale volume to spot potential investment opportunities.
How to Interpret Short Sale Data
Short Interest and Short Interest Ratio are two useful indicators that can reflect the market’s bearish sentiment and stock price movements. The higher the short interest, the greater the chance of a lower stock price. Conversely, if the short interest sees a significant decline, it means that more short-sellers are buying stocks to close their positions, which may push the stock price higher.
When a stock is heavily shorted and the price keeps rising for various reasons, the short sellers have to buy back the stock at a higher price. This is when a short squeeze occurs. The previous GameStop short squeeze is just one handy example. Next, we will use Short Sale Analysis to review the GameStop short squeeze to help you better understand the data.
In late December 2020, the stock price of GameStop was weak with a short interest ratio of over 100%, meaning that the bearish investors sold more stocks than the existing number in the market. This is the point when hidden dangers lay in wait.
On January 19, 2021, Citron Research, who’s better known as a short seller, released a report saying that investors who bought GameStop would be losers, and the company’s stock price would plummet to $20 per share. At that time, GameStop’s closing price was $39.36 per share, meaning that Citron believed its share price would be halved.
However, what’s unexpected is that this inspired a group of retail investors to fight against Citron. They flocked to GameStop, making moves to lift its share price.
On January 22, 2021, the total short sale volume reached a peak, and there was a strong short sale sentiment. The retail investors united together, causing GameStop to skyrocket by 51% on that day.
Later, Elon Musk and Michael Burry, the prototype of 「The Big Short」, also joined the short squeeze battle, pushing the share price of GameStop to skyrocket and leading to a significantly lower short interest. As the short sellers started to buy back stocks to close their positions, the stock price was pushed even higher. By January 29, the short interest ratio dropped to 30.7%, and the closing price on that day reached $325, an increase of more than 7 times in just ten days.
How to Use Short Sale Analysis When Analyzing Individual Stocks
To a certain extent, the short sale volume can reflect investors’ views on the price trend of a stock. A stock with a huge short sale volume indicates that investors are bearish on the stock’s future price. If a stock’s short sale volume starts to rise sharply, it is very likely that the stock price may drop in the short run. By referring to short sale data, we can get a handle on the market sentiment to assist decision-making.
Let’s take Tencent as an example. There were two surges in short sale volume in July, both of which correspond to a drop in the stock price on that specific day (the gray line represents the closing price). Therefore, it is very likely that a drop in price could be associated with a surge in short sale volume. Let's get back to the Tencent example. After July, the number of short sale volume decreased compared to the previous level, and the stock price started to go up. The reason for the price jump may be twofold. First, it may be caused by a stronger demand of buying the stock due to the bullish sentiment. Second, it may be the short sellers who were buying back the stocks to close their positions.
However, it’s worth noting that although there is a certain negative correlation between the stock price trend and the short interest ratio, such correlation may not be the only factor affecting the stock price. A stock’s price may be affected by a number of factors, and investors cannot rely on a single indicator to predict the price trend.
Short Sale Rankings
In addition to the Daily Short Volume Chart and Short Interest Chart, you can also tap Short Sale Ranking on the right hand to track short sales in the market and spot potential investment opportunities.
You can even select the market you’re interested in and set different parameters for the list by tapping Filter in the upper right corner. With this function, you can view the list of unusual short sale, short volume, short ratio, average short volume, average short ratio, short interest (volume), and shot interest (%).
How to Access Short Sale Analysis via the app
You can find Short Sale Analysis by tapping Analyses on the Detailed Quotes page of a stock.