Short interest trends closely tracking stock prices in PG, MSFT, and AAPL suggest reversal strategies are driving positioning and sentiment shifts.

For some stocks, the graphs of short interest and stock price move in tandem, displaying a strong correlation. This suggests that traders are shorting at price peaks and covering at troughs. Notably, this pattern often persists even when the stock trades outside a defined range.

This type of trading, known as a reversal strategy, involves shorting as the stock rises and buying as it declines. It may also serve as a hedge and contribute to the formation of a trading range.

In such cases, price action can serve as a proxy for estimating short interest, which is officially reported only every two weeks. By analyzing these correlations, traders can anticipate short interest trends without waiting for official data.

Conversely, some stocks exhibit the opposite pattern—a momentum strategy, where investors short during declines and cover as prices rise.

This behavior is common in distressed stocks and during short squeezes, where rapid upward movement forces short sellers to cover their positions quickly.

Procter & Gamble (PG) has remained range-bound between $155 and $185, consistently oscillating within these levels. Its short interest also follows a range-bound pattern, aligning with stock price movements.

Microsoft (MSFT) initially traded in a range before experiencing a 20% decline, followed by a 25% rebound. Throughout these fluctuations, short interest closely mirrored stock performance, highlighting a strong correlation.

Apple (AAPL) followed a similar path, trading in a range before undergoing a 30% sell-off. The short interest and stock price charts remained closely synchronized, underscoring this relationship.

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