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Why Short Interest in ETE Could Mean Bearish Sentiment

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Dec. 4 2020, Updated 10:53 a.m. ET

Short interest in Energy Transfer Equity

Short interest in Energy Transfer Equity (ETE) as a percentage of its float ratio has risen to 7.4%. This ratio is higher than the past year average of 6.4%. Moreover, it’s higher than the historical three-year average of 4.9%. This difference might indicate bearish sentiment.

The above chart shows one-year closing prices and short interest as a percentage of the float for ETE. Short interest is the number of shares sold short, whereas short interest as a percentage of float is the number of shares sold short divided by floating shares. A high percentage of short interest or an increase in short interest generally indicates pessimism about the stock. However, this pessimism might not necessarily result in a stock price decline as short position holders try to cover their short positions, which could result in a stock rally.

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Industry average

The Alerian MLP Index (AMZ), which tracks 50 energy MLPs, has an average short interest as a percentage of the float of 3.4%. Short interest in ETE as a percentage of the float ratio is above the industry average. Sunoco LP (SUN), Boardwalk Pipeline Partners (BWP), and Golar LNG Partners (GMLP) are among the AMZ constituents with the highest short interest to float ratios.

Put-call ratio

The put-call ratio is another measure to look at investors’ sentiment toward a stock. A high put-call ratio could indicate that a large number of investors expect the stock price to fall, and vice versa. ETE has a high put-call ratio of 1.02.

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