My question is regarding short interest in a stock. KKD has a huge short interest (I think around 20%). How do you look at this with respect to a stock? It seems like it would be a contrarian indicator with that many shorts to cover. (February 2, 2002)
One of the indicators we keep an eye on in the market is the short interest on the NYSE and other indexes. Yes, it acts as a contrary indicator; when it gets to high or extreme levels it can be a signal of excessive fear in the market: a lot of investors are betting it is going to go lower. When it becomes the popular thing to do, the end is coming. The same can be used to a certain extent with short interest on an individual stock but it is not quite the same as on the market as a whole. It is not the entire market shorting in fear, but shorting just because it has made a run and they feel it cannot maintain the action. Always best to look at the price pattern and how the volume is moving with it. Is it showing accumulation or distribution? Since KKD first started trading and had a big run up, KKD has had more than its share of short interest. Many believe it is a cult stock and will run out of steam. Right now it is showing signs of wear and tear, trading below its 50 day MVA for the first time since September.
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