Before we analyze Alcoa’s (AA) short positions, let’s first discuss a few key terms. Short interest tells us the number of shares that have been sold short (SDS) (SPXS). Exchanges release the short interest every two weeks. Short interest tells us the mood of the general market with respect to a particular security.
From the short interest, we can derive the short interest ratio, which is the short interest divided by the average daily traded volume. The ratios that measure short interest and short interest to market capitalization basically standardize the short interest.
It’s natural that larger, more liquid companies can have high absolute short interest. Therefore, we standardize short interest to the market capitalization or the trading volumes.
Short interest ratio
The graph above shows Alcoa’s (AA) short interest ratio plotted against its stock price. According to the latest update on July 29, 2016, Alcoa’s short interest ratio stood at ~8.
This ratio has increased sharply from the previous update, when Alcoa’s short interest ratio was 4.8 on July 15. Currently, Alcoa’s short interest ratio is its highest since July 31, 2013.
Other aluminum producers
Among the other miners, Century Aluminum (CENX) and Rio Tinto (RIO) had short interest ratios of 6.1 and 3.7, respectively, on July 29. Both of these companies also saw an increase in their short interest from the previous two-week reporting period. However, the amount of the increase is considerably lower than the sharp increase in Alcoa’s short interest.
Bears seem to be attracted to their chances with Alcoa’s split. However, long-term investors seem to be betting on value creation after Alcoa’s split. You can explore this in more detail in Traders and Investors Take Opposite Position on Alcoa’s Split.
In the next part of this series, we’ll look at Alcoa’s key moving averages.