The Most Shorted Stocks Plunged On January 28, For Now At Least

The most shorted stocks had a rough day, with the index falling almost 6%. I guess that’s what happens online brokers cut off access to traders. It isn’t surprising to see these guys try to slow the trading pace. I heard from many people that they couldn’t even get on the websites, so that is not good for anyone. Second, these brokers take on tremendous amounts of risk; it isn’t to screw anyone. It is to protect the firm and the clients. This type of stuff has happened before, and it will happen again. Brokers are running a business and have risk managing, too, so that needs to be respected. If you don’t like it, open a prime brokerage account, and then you can trade with whoever you’d like.

Anyway, all of these shorted stocks are running now after hours. What is kind of strange, well to me anyway, was the all the open interest changes in the calls for Nokia. Why is that strange? Well, Nokia is ADR, and its main listing is actually in Europe.

When the US’s stock is soaring to like $10 and is trading for like 3.80 euros, there is a major mismatch in the market. The stock’s local owners and not the depository receipt see the arbitrage and will start selling the US stock. The shares are fungible. So when you pick the stocks you want to play, make sure they aren’t an ADR.

When the two stocks are trading together, it’s called parity.

S&P 500 (SPY)

Not as good a day for the S&P 500 as it would seem. The index finished the day higher by 98 bps but had been up by around 2%. The index got right to our trend line and failed. If today is a preview of what that means, I may take the next couple of weeks off.

Gapping below a trend line and then failing at the trend line the next day is a bearish sign.

South Korea (EWY)

Everyone may want to keep an eye on the KOSPI the next couple of days for a double top alert. A break below that V in the middle of the two peaks around 3,000 is a really, really bad sign.

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Disclosure: Michael Kramer And The Clients Of Mott Capital Own AAPL

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