According to the just released NYSE short interest update, the number of shares short on the NYSE group has just dropped to 2010 lows, afterdropping by over 1 billion since the August highs. This has occurredpretty much in linear fashion: in the last 4 months, there has been justone two week period in which the shorts have increased. What is justdelightfully ironic, is that even as broad market volume has collapsed,biweekly short covering has surged on a relative basis. In essence, thebulk of the market buying has been short covering, which traditionallyis always 'offer-lifting' heavy, as shorts are willing to pay any priceto cover underwater positions, especially if there is an accelerantinvolved, such as when a repo desk advises its "client" that StateStreet has decided to force squeeze financial stocks for the nth time since March 2009.
The chart below shows that after standing firm through the end ofSeptember, shorts have capitulated and the bulk of the weak hands has bynow been washed out.
The second chart shows the near relentless covering in biweekly short positions:
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