(September 22) – “Short-selling activity on the Big Board hit a record, as the bears increased their bets on a pullback”, writes Cassell Bryan-Low in today’s Wall Street Journal.

“On the New York Stock Exchange, the level of short sales not yet closed out, known as short interest, rose 3.1% to 4,312,974,784 shares in the latest month through Sept. 15, from 4,182,377,858 shares on Aug. 15, statistics released Tuesday showed. The latest figure surpassed the previous record set in June of this year.”

“Meanwhile, on the American Stock Exchange, owned by the National Association of Securities Dealers, the short-interest figure increased 0.4% through Sept. 15 to 207,340,428 shares from a revised figure of 206,518,165 shares in mid-August. Figures for both exchanges reflect transactions through Sept. 12.”

” ‘Choppy markets are good for short sellers,’ says Harry Strunk, an investment adviser in Palm Beach, Fla., who surveys short sellers. With the market’s recent weakness, ‘they’re having a pretty good month,’ he says.”

“Short interest is often considered an indication of the level of skepticism in the market. Investors who sell securities ‘short’ borrow stock and sell it, betting the stock’s price will fall and that they will be able to buy back the shares later at a lower price for return to the lender. Short interest reflects the number of shares that have yet to be repurchased to give back to lenders. In general, the higher the short interest, the more people expect a downturn.”

“The level of negative sentiment measured by the NYSE’s short-interest ratio — sometimes considered a contrarian indicator, as short-interest shares eventually must be repurchased — was up to 4.8 from 4.4 the previous trading period. The short-interest ratio is the number of trading days at the exchange’s average daily volume required to convert the total short-interest position.”

“Some investors will allocate some of their portfolio to a professional short seller to hedge, or protect, their assets in case the market falls. Investors also may rely on short selling for other purposes, including as a hedging strategy related to corporate mergers and acquisitions, to hedge convertible securities and options or for tax-related purposes.”

“Average daily Big Board volume was 890,646,452 shares, down from 954,275,603 shares the previous month. Short positions were calculated for the month including the 22 trading days through Sept. 15.”

“The next NYSE short-sales-outstanding report will be published Oct. 20.”