How to Use Short Interest as a Market Sentiment Indicator

Short interest reveals how defensively or complacently institutional investors are positioned.

Featured Tickers: GME

• Explains how aggregate short interest reflects institutional conviction and defensive market positioning

• Introduces the Short Interest Diffusion Index (SIDI) as a standardized measure of professional sentiment across time

• Shows how combining short interest with trends, volatility, breadth and valuation improves market risk assessment

Ask most investors what high short interest means, and you’ll hear some version of this: “Too many people are betting against the stock, so it’s due for a short squeeze.” This conventional wisdom—that elevated short interest is a contrarian bullish signal—has misled many investors.