Shorts Exposed

[patchman]

fourkids, the assessments made by FINRA's short sale volume reporting is so error laden it is ridiculous. investors are clueless on what the numbers mean.

Simply take any single day and calculate the percentage of short sales that take place across the thousands of companies. Many people claim short sale abuses when in fact what constitutes a short sale (by reporting standards) are many things far greater than short sales. Longs who sell stock without custody of shares are tagged as short sales, Custody delays associated with stock loans or custody related to 144 sales would constitute posting a long sale a short sale. Day traders who buy first sell later will create a short sale as they never held custody when selling.

For example, I looked at February 26, 2010 and the 2310 companies listed in the OTR category. Of the 2310 companies, the average short sale volume was 46% and the mean was 40%. The performance of these companies was positive, negative, and flat. I likewise looked at other companies on the NYSE and NASDAQ and found that the reported volumes by these listings did not match the market volumes reported by the various entities.

Bottom Line; the level of resolution in the transparency of this data does not allow investors to properly understand how this market is trading. Proof positive of the dangers in this data is the misinterpretations of so many when they look at it.

Tell me, how do you know that one company with a 43% short volume is being manipulated by shorts when another company at 60% short volume is not? Is every company with a high short volume automatically being manipulated?

Proof of how poorly disseminated this data is, consider the financial stocks during the short sale ban. The markets continue to post short sale volume all while a complete ban on short selling existed. So what exactly was this short volume during the ban? understanding this gives investors a better understanding of what constitutes a short sale in the reporting of a trade.