In yesterday’s Chart of the Day sent to Bespoke subscribers, we looked at the impact that short covering has had on the rally over the last two days. We broke the Russell 3,000, which contains stocks making up more than 98% of U.S. equity market cap, into deciles (10 groups of 300 stocks each) based on short interest levels. We then calculated the average percentage change since Thursday’s close of the stocks in each decile.
The decile on the left in the chart below contains the 300 Russell 3,000 stocks with the lowest short interest as a percentage of float. The decile on the right contains the 300 Russell 3,000 stocks with the highest short interest as a percentage of float.
The average stock in the R3K is up roughly 4.6% over the last two days. As shown, though, the most heavily shorted stocks are up an average of 6.5%, while the least shorted stocks are up just 3.5%. As you move from left to right on the chart, performance gets stronger and stronger — meaning the higher the short interest, the better the stock has done.