Shares short as a percentage of float is a useful variable. Why? Because it does not tell you anything. The ONLY measure that matters is the short ratio or the days to cover ratio.
The short ratio tells you how long it will take the shorts to cover. Shares short as a percentage of float only tells you that against outstanding shares there are or are not lots of shorts. It is useless.
I want to know how long the squeeze will last. As an example, in the case of HLF the short ratio is 12.90. That means is the shorts were covering AND there were no longs buying it would take them 13 trading days to cover their position based on average volume. IF the shorts had to compete with natural buyers, then one could use a multiplier of say 1.5 to get the true short ratio. So in the case of HLF, I could argue very easily that the position would take 19 days to cover. Ackman is soooo screwed it is funny.
At Erlanger Research we modify the short ratio to get a better read of it. The exchanges short ratio is shares short divided by volume over the last twenty trading days. The problem with this is unusual volume could move the short ratio even though the short position remained unchanged. Therefore, we use 12 month volume as our denominator to create the Erlanger Short Ratio.
Next we then look at the range of the short ratio over the last five years and then create the Erlanger Short Intensity Ratio. If a stock had a high short ratio of five and a low of zero and the current number was four, then we would determine the Short Intensity level was 80%.
Below are the top ten biggest changes in the NASDAQ Short Positions. Next week we will talk about how we then look at the technicals to determine if a stock is in a short or long squeeze, or neither. Have a good weekend.Comments »