SHORT INTEREST AND LEVEL OF PAIN
Generally, short interest is a monthly statistic presented on a current-month versus previous-month basis.
Viewing one or two months of short interest data is, unfortunately, a tantalizing but less than satisfying
experience. To appreciate short interest data, it is necessary to gather as much historical information as
possible, including price and volume as well as short interest data. The objective is to determine which
stocks and groups have been most "wrongfully" shorted — that is, the degree that price has advanced
against established short positions. Such measurement is referred to as the short's level of pain.
To gauge the short's level of pain, some data need to be known: Is there a significant short interest
position (Figure 1), and has price advanced against that short position, and by how much?
The first point is essential. If the short interest position is minor, the prospects for a short squeeze are in
turn at best minor. A common denominator for judging the intensity of short selling requires knowing the
history of short selling in a stock or group. Knowing that the soft drink group has a short interest ratio of
3.65 is not nearly as informative as knowing that 3.65 is the highest ratio in more than four years!