The Face of a High Short Interest

Before I trade a stock I check its short interest.  Why?  Because it may affect how the stock trades.  Simply, the higher the short interest the more buyers there may be intraday.  26 percent of the float is short JCG.  I considered this with my every trade today.  Let’s discuss.

In our SMB AM Meeting we discussed 25 as resistance in JCG.  On the Open JCG tested this level, it held, and JCG traded down a point.  JCG rebounded towards 24.80.  And then the fun began. GMan announced, “There has not been a green candle that has closed above 24.80.”  

Now 25 had been resistance.  And our charts were showing weakness.  This is a short right? Not so fast.  It’s called trading not chart reading.  There is much more to trading than just reading your charts.  I called off the shorts.  Why?  Not because Mrs. Obama shops at JCrew, though she is a very stylish dresser.  Because of the short interest.  

From the tape I could see the sporadic buying.  Buy orders suddenly entered the market causing JCG to spike.  Offers lifted quickly from over agressive and sudden buying after periods of calm.   This can be indicative of short covering.  With a short interest so high you must be careful calling tops.  Upmoves often do not make sense.  

I actually got long near 24.71 as JCG could not trade below 24.70.  And I did this even though JCG could not yet trade above 24.80 and 25 was resistance.  JCG was in an uptrend.  JCG had a huge short interest.  I saw the sporadic buying.  I sensed a squeeze.

JCG ended the day much higher.  And you will see this often with a stock that has a high short interest.  Be careful.  Understand that even when your charts are screaming “sell”, that the high short interest may be most important.  There may be many eager to cover.

I will be back to talk trading with a blog tomorrow. Don’t forget to follow us on twitter.

 jcg-05-29-09

 jcg-open-05-29-09

4 Comments on “The Face of a High Short Interest”

  1. Hi Bella, good post.

    I was wondering if you are using the short interest which is published monthly or if you use a more frequent calculation (if at all possible?)

    If you use the monthly data, do you just consider this figure or are there any factors you include in order to make the calculation more timely.

    cheers,
    eToke

  2. Hi Bella, good post.

    I was wondering if you are using the short interest which is published monthly or if you use a more frequent calculation (if at all possible?)

    If you use the monthly data, do you just consider this figure or are there any factors you include in order to make the calculation more timely.

    cheers,
    eToke

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