Hello everyone! Thank you @Meta Moo to start for new type of...

Hello everyone! Thank you @Meta Moo to start for new type of stock analysis for us to learn!

I am happy to learn and share my insight here.

The current topic is short sale analysis. Before I start my case study, I will give a brief introduction on what short sale means and how it works.

Short selling is where we sell the shares to someone else, without holding the shares at the first place. So, we need to borrow the stock from someone else, for example, a broker. In this case, we are the sellers who sell the share to “open” a position. As we borrow the stock from the broker, we are obligated to return the share. Thus, we need to “buy” the share back and return it. So how do we profit from it?

Let use this as an example.

A and B are good friends. A is going overseas for a year, so he asked B to take care of his brand new iphone 13. In this scenario, A is the owner while B is not. This means B is obligated to return A the iphone when A is back.

While A is away, B sell this iphone 13 at 1000 dollars. One year later, B is reminded to return A the iphone 11. At that time iphone 14 has already launched, so the market price for iphone 13 is therefore only around 1000 dollars. So B purchases a new iphone 11 at 600 dollars and return it to A. A still gets his iphone 13 without knowing that B the short seller has profited 400 dollars in this process!

You may want to refer to my previous video, start at 10:39 to understand more about short selling.

Once we are clear about the concept of short sellings, next I shall proceed with case studies.

Case study : QQQ
I am a tech-lover. Thus, when QQQ, an ETF tracking Nasdaq composite index crashed into the bear market, my portfolio was hit as well. Let us check if we could get some insight using the short sales analysis.

Note that the data of the daily short volume is a lagging indicator. As always, we should not rely on a single indicator to make a conclusion. Here, i will combine simple moving avarage-30 and volume with the short sale analysis.

Below is the WEEKLY chart for QQQ. You may find that on 17/1/2021, QQQ closed below MA30. From the previous months since covid-19 crashed, QQQ has never closed below MA30! This suggests a changes of market sentiment.
In addition, we can also notice that the volume from November2021 to January 2022 onwards, the volume was relative larger!

If we look on the short sales analysis during the period of November2021 to December2021 below, could you notice that the surge of daily short volume during these periods? Thus, based on the short sales analysis, we know that the daily average volume shown in the chart, is mainly short sale volume and the market sentiment is bearish!

The daily short sale volume was also increasing from the first week of January 2022 towards the last week!

So we know that, the sentiment of the market has shifted to the bearish- closed below weekly MA30, surge of short sales volume. It clearly suggested that the overall market sentiment is BEARISH! With so much short sales volume, most likely the big institutes were selling the stocks. Unlike retail investors, big institutes had to unload their shares by batches as the amount was big, which suggests the surge of short sales volume and increasing short sales volume during this period of time.
Then, the QQQ crashed all the way and entered the bear market.

Summary:
1. Never use a single indicator to predict the direction of a market.
2. Combining weekly MA30 and daily average volume with short sales analysis could warn us about the shifting of the market sentiment from bull to bear.

Lastly, although short sales analysis is powerful to anticipate a short squeeze for huge gain, but to me, it is still more to gamble, and not my style. So I will skip that part. The case study prepared by MetaMoo is a very good case analysis.
Other Moo Moo-ers have also published their case study too.

Thank you and see you in the next post!