Specialist Short Ratio
This indicator is used to determine what the Specialists are doing. The Specialists are people on the floor of the exchange that are in charge of maintaining an orderly market. Each Specialist may handle one or more of the stocks listed on the exchange. Specialists are where the action is, they know what is going on by being there. A Specialist is allowed to trade on his own behalf.
This is where the Specialist Short Ratio comes in to play. If the Specialist determines that market is going to move lower, he/she may decide to Short shares of stock. That is sell stock that he doesn't own (by borrowing it from somebody else) knowing that he can buy it back at a later date and a lower price to pay the stock back. The resulting difference is his profit. Since the Specialist is generally right, we use this indicator as an integral part of our market analysis tools.
Every week in the Barron's Market Laboratory under Week's Market Statistics the figures for Total Short Sales and Specialist Short Sales are listed. You must enter these two figures as listed (that is in thousands of shares) on a weekly basis. The percentage of Specialist Short Sales to Total Short Sales is calculated by the program. The resulting calculations are smoothed using a 10 week simple moving average. These figures are then plotted on your screen.
When the Specialist Short Ratio is moving upward that means that short sales by Specialists is taking place at a more rapid rate than normal. This indicates weakness in the market has been detected by the Specialists and that caution should be taken, because the market will soon move lower.
When the Specialist Short Ratio is below 40% it generally means that the Specialists are Bullish and you should be too.
One minor thing should be noted here is that the information in the Barron's Market Laboratory for the Specialists is about three weeks old by the time that you see it. For most people this information is current enough.
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