The Weekly Update 11/3/2023
“He Who Sells What Isn’t His’n Must Buy It Back Or Go To Pris’n.” Daniel Drew on Selling Short, late 1800’s.
A Short Sale is when someone thinks a company’s stock will go down and to profit they reverse the transaction order. Short Selling means you sell the stock first and buy it back at some point in the future.
Suppose you thought Company X would drop in value from the current price. You sell it now and when it drops you buy it back and the delta is your profit.
However, to sell something you don’t own means you need to borrow it. Banks and brokerage firms lend shares of companies all day long.
How you lose money in a “Short Sale” is if you sell it and the shares go up and up. At some price point you feel that pain of loss and you “buy back the stock to cover” your sell. The delta, in this case, is your loss.
Hence the quote above!
This brings us the reality of an October 10, 2023, report from Goldman Sachs stating there is currently an “extreme short” position of $47 Billion in U.S. common stock.
Before I conclude with the point of this update let’s consider this:
The “Sell in May and Go Away” ends today. (I am writing this update 11/1/2023)
The best six months of the twelve starts today. Not always to the day, but if the market valuations are going to trend up, it should start by the end of next week.
Also, we are 60 days away from 2024, an election year. Those tend to be positive return years.
Unlikely the Fed will raise rates more than one more time, as the market already did their work for them, i.e., interest rates up.
Revenue and earnings for Corporate America are up across the S&P 500.
Combined, we could be looking at a change in trend, to up!
If I am correct, and I believe I am, this up trend will ignite the fear of being “short” and having to buy back to cover, “or go to pris’n”.
I strongly believe that $47 billion in short positions is rocket fuel to drive the values higher.
In The Weekly Update for 10/20/2023 (read it here). I posted the chart below.
Key point: As you observe the chart below pay special attention to what happened right after the prior gold star lows!
I’m interested in your thoughts, comments, and observations. Feel welcome to call, email, or stop by the office and say Hi.
James O. Lunney, CFP®
CERTIFIED FINANCIAL PLANNER™ Professional
Securities and advisory services offered through LPL Financial, a registered investment advisor. Member FINRA/SIPC. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments.