Question about closing shorts

[M34N]

Hi guys,

I've always been interested in how 'shorting' works, as I've never done it before. Just one thing I've noticed in the years of watching the market that has interested me, when you close a short, does that mean that you are pushing the price of said stock up, because you are technically 'buying' it back?

Example, I noticed with NCM shares on Friday, they opened down some 5% ($1.60), then, in the last 50 minutes or so, the price rose over $1.30 from approx $30.50 to close at $31.84, all on increasingly high volume and in the face of a dropping gold price. But this made me think, on the last day of the month, was this people closing their short positions in the last hour of trade, and hence pushing the price of NCM up by buying their stock back after shorting it? Also noted the very high buying volume across the market for the day. Refer to the attached chart below.

I also noticed on the E*Trade website that NCM was in the top 5 "most shorted stocks" list on 22 May, then I checked again just now, and it's not there anymore.

Or am I completely wrong? Perhaps might explain a lot of the movements in share prices of companies like BHP, RIO etc which all finished sharply lower in the final minutes of trading, possibly a sign of people beginning to short these stocks? Would be good to know for sure as I would find this useful to see what other people are doing on the market.

 

[wayneL]

Yep

Hence the term "short squeeze".

A lot of folks like to blame short sellers for a falling stock, but they forget that:

* A long stock holder selling out may never buy that stock again.

* A short seller MUST buy at some point in the future.

If I was a holder of stock, I would much prefer short selling than normal selling.

 

[theasxgorilla]

Yep

Hence the term "short squeeze".

A lot of folks like to blame short sellers for a falling stock, but they forget that:

* A long stock holder selling out may never buy that stock again.

* A short seller MUST buy at some point in the future.

If I was a holder of stock, I would much prefer short selling than normal selling.

I have never thought of it like this...hmmm.

 

[M34N]

Yep

Hence the term "short squeeze".

A lot of folks like to blame short sellers for a falling stock, but they forget that:

* A long stock holder selling out may never buy that stock again.

* A short seller MUST buy at some point in the future.

If I was a holder of stock, I would much prefer short selling than normal selling.

So really, if a lot of people short a stock, it suggests that, eventually, the stock will have to rally back just as hard because the people who 'sold' it will have to 'buy' it back again later, versus the normal selling from an investor who has no obligation to re-buy, unlike a shorter, who has to re-buy. Sounds like a good buying opportunity to me when a lot of people go short, suppose like most things on the market, it's all about timing, but it seems at the end of the month/quarter it seems a good time to buy into a stock that has been shorted heavily, or to short something that has been over-bought.

Could be a good strategy to make a quick buck. Thanks for the answer Wayne.