Short interest jumps up at discount brokers
Posted
Dec 29 2007, 10:39 AM
by
Douglas McIntyre
One of the most interesting sets of numbers that hits Wall Street every two weeks is short interest in stock traded on the major exchanges. The number represents bets being made against a stock going up and in favor of its falling. Several big names are usually high on the list, including Level 3, Sirius, and Intel.
For the period ending December 14, shares sold short went way up for the three big discount brokers. It makes sense that E*Trade is on the list. It has had such significant problems with sub-prime financial instruments that its short interest at 53.7 million shares, up 3.9 million from the last measurement date on November 30, is understandable.
But, shares sold short in Schwab moved up 6.1 million to 27.8 million for the period. At TDAmeritrade the short interest jumped by 8.2 million shares to 17.8 million.
Investors might argue that Schwab and TDAmeritrade have balance sheet problems like those at E*Trade, but none have been disclosed, so that is not likely. What is interesting is that both companies trade near 52-week highs, Schwab at over $25 and TDAmeritrade at over $20. Most financial stocks are nowhere near their annual tops.
The market may simply be guessing that if the economy slows and the stock market moves down, individual investor trading activity may go into hibernation. The two healthy discount brokers may have little inherently wrong with them, but a cycle away from a bull market could undermine their earnings. There are certainly a lot of shares bet in that direction.
