Quentin D. Solano
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Quentin D. Solano in Breaking news,

This is what should really worry you about stocks

Here’s something the bulls should be worried about, but are not: The volume of short selling, which has been increasing each month since last December.

I’m focusing on this as a follow-up to several previous columns that had a happier conclusion: Issues that the bulls erroneously think are worrisome — such as the VIX’s VIX, +5.77   low level and the flattening yield curve.

But not all the data point to a bullish conclusion. And when it comes to the short interest data, the bulls are kidding themselves in thinking that the volume of short selling is a contrarian indicator—with lots of shorting being a bullish omen, and vice versa.

But this contrarian interpretation is wrong, according to a study that appeared recently in the Journal of Financial Economics, a respected academic journal. That study found that short sellers on balance are right more than they’re wrong, and that in turn means it’s worrisome that the volume of short selling has risen so steadily this year.

On the face of it, of course, it seems unlikely that any group of investors should on average be able to beat the market. After all, as everyone knows, stock picking in general is a losing game. Why should those who bet stocks will go lower do better than those who bet they’ll go higher?

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