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I am reading on various topics (as some may have gathered from posts). I understand the concept and implications of a short-sale pretty well. I understand how to interpret the short-ratio. Everything was going fine until I read a part that confused me.

IF the short-ratio goes up, it may indicate that investment sentiment in the company is decreasing, meaning stock prices might go down. However, a youtube video said that short-ratios of 5+ are considered bullish, meaning stock prices go up.

Shouldn't it be that short ratios of 5+ are considered bearish, not bullish? Is it only "bullish" because a high-ratio is more likely to cause short-squeezes?

Thanks once again.


Thanks for the insight that they are a waste of time. Ill look into that as well jeje, thank you.

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The Short Ratio is the total number of short shares divided by the average daily volume. It's also called the Days To Cover ratio because it's an estimation of how many days it will take shorters to cover their positions the stock heads higher. The idea is that the higher the ratio, the longer it would take to buy back short shares and the stronger the short covering rally would be (bullish). A higher number means there is the potential for a stronger short squeeze.

I think indicators like this are a waste of your time but consider your question asked and answered.

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Ignoring the actual sentiment a large quantity of shorts might bring, or any outside news that actually might be causing the underlying price to move.

An excessive number of shorts on a particular security can cause a rise in the price for the underlying security under certain circumstances. If the price moves against the shorts, some may need to purchase back the underlying security to cover their position. This then causes the price to move up further and cascades again to cause other shorts to also need to cover their positions. Thus, a large number of shorts can be a counter indicator for a potential move opposite of the negative sentiment.

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