Small Cap Short Interest

Friday topped off a rather nice week for all the major indices with the DOW marking its highest point in over three months. Any time I see a decent short term rally amidst longer term downward/sideways action I begin to wonder what affect short covering had in the rally. In addition to looking at the typical metrics (breadth, net A/D, new highs/new lows) I like to run through some of the data for small cap names with high short interest. Below is spreadsheet for the 30 small cap securities that had the highest short interest as of April 1.


As you can see I have included their percent change from April 1 to April 18 as well as the overall change in short interest.

In running this screen I am looking for a couple things:

- Stocks which have seen a swift rise in price coupled with a decline in short interest. A situation like this could signal a nice re-entry point for many shorts as the weak short holders have been pushed out and buying has dried up.

Stocks to note: NTRI, SPF, CTCT

- I also look for stocks which have declined significantly with increased short interest. These stocks could be prone to strong short covering rallies if solid earnings or good news hit the stock.

Stocks to note: DSL, CROX

- Lastly I like to check for irregularities, something like CONN, where the stock has risen over 10 percent and yet the short interest is up almost 30. Again this gives us no clear indication of future direction but I would expect to see some sharp moves in the stock going forward.

Of course all of this analysis should be done in the context of both fundamental and technical analysis for any of these companies. But often times including other forms of analysis can help improve an investor’s insight into the overall direction of a security.


Andrew