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Reading the Short Interest in Top Midstream Companies

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Short interest as a percentage of float

Short interest represents the total shares of a particular stock that have been shorted but haven’t yet been closed out. According to the data released on January 10, 2018, the short interest as a percentage of float of Energy Transfer Equity (ETE) was ~5.2% on December 29, 2017. This means that the number of shares shorted fell to ~40.9 million from ~45.7 million shorted shares on December 15, 2017.

A low short interest as a percentage of float ratio and a decrease in short interest indicate that fewer investors expect the stock’s price to fall. However, the investors can always be wrong in their expectations.

The above graph shows the recent changes in short interest for midstream peers Energy Transfer Equity, Kinder Morgan (KMI), Enterprise Products Partners (EPD), and Williams Companies (WMB).

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Short interest in KMI, EPD, and WMB

The short interest as a percentage of float in Kinder Morgan was ~2.4% on December 29, 2017. The number of shares shorted fell to ~46.7 million from ~48.4 million shorted shares on December 15, 2017.

The short interest as a percentage of float in Enterprise Products Partners was ~1.5% on December 29, 2017. The number of shares shorted fell 24.5% to ~21.9 million from ~29.0 million shorted shares on December 15, 2017.

The short interest in Williams Companies stock as of December 29, 2017, was 2.0%. This fell marginally from December 15, 2017.

Short interest ratio

To clarify, the short interest ratio indicates the number of days it will take for short sellers to cover all their positions. The ratio is calculated by dividing short interest by the average trading volume of a particular stock.

The short interest ratio for EPD, ETE, KMI, and WMB is 3.0x, 8.0x, 4.0x, and 4.0x, respectively, and so it will likely take the eight days to cover all the open short positions in ETE stock.

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