Market Rise

[ShoeshineBoy]

I'm SO confused. I don't want to go down the road of a recent board about patriotism and shorting, etc. But I can't help but ask about Yahoo asserting several times that yesterday's rise was mostly due to short covering.

http://biz.yahoo.com/mu/update.html

"All in all, not a bad day. Today was an important day to see
if the market could build on yesterday's short covering rally.
A strong effort today would have been a sign that new money
was coming into the market rather than simply the shorts
covering their positions. The volume was pretty heavy today,
so it's encouraging that there were enough buyers even on the
high volume to close positive...."

I've only read about options, and to me, it seems there's always an equal buyer and seller for every transaction (even if the stock is already covered) so there's no supply/demand pressures. But obviously I'm wrong.

Anyway, I'm wondering if one can find which stocks are heavily shorted and if there are any offensive or defensive strategies one can use on them? I'm also wondering if it's foolish to buy a stock that you expect to rise if it's heavily shorted...

Thx!

 

[roger2]

www.viwes.com/invest/shorts/

"it seems there's always an equal buyer and seller for every transaction (even if the stock is already covered) so there's no supply/demand pressures"

Correct, if the shorted (sold) stock has been covered (bought back) the transaction is complete and there is no longer any buy/sell pressure relating to that transaction. But the short interest of a stock represents all the short sales which HAVE NOT YET been covered, so a buy will eventually occur for the shorted shares.

"I'm also wondering if it's foolish to buy a stock that you expect to rise if it's heavily shorted..."

If you really have a good reason to believe that a heavily shorted stok will rise it is OK to buy. You may even get lucky and get a disproportionate rise if, (as often happens), the holders of shorted shares panic and buy along with you.

However, if your reason to believe the stock will rise is not compelling, you must consider that traders who shorted the stock, possibly with knowledge you are not aware of, are still betting the stock will go down further.