During the second half of September, short sellers sold $19 billion of new shorts due to the stock market's volatility.
The decline of 4% and below the 30,000 mark was the result of recession concerns and the Federal Reserve's continued stance of raising interest rates.
The S&P 500 dropped to the lowest level in two years as investors retreated with the U.S. central bank's stance on monetary policy.
The impact of Britain's first budget under new Prime Minister Liz Truss, which includes an extra $80 billion in borrowing to pay for tax cuts and energy prices caps, had a spillover effect on stocks.
Short Sellers Reverse Direction
There were $19 billion of new shorts sold by short sellers. Ihor Dusaniwsky said that shorts bought to cover $16 billion of their short positions.
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The rally that took place in September has been replaced by a correction.
He wrote in a report that short interest was more than $1 trillion as of September 21.
Most of the 159 sub-industries reported a decline in short interest in September.
Almost all of the sub-industries had a decline in the mark-to-market value of their shorted shares.
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"Like using a boat’s fish finder to locate schools of large fish, we can use the S3 Black App to look for profitable sub-industries on the short-side that are seeing increased short selling — winning trades where traders are increasing their bets," he said.
Steel had the highest volume of short selling. The stocks that were shorted the most were Vale and Fortescue Metals Group.
Investors Shorting Certain Industries
The marine, forest products, heavy electrical equipment, mortgage REITs and textile industries were all heavily shorted.
He said they were looking for sub-industries with increased net short selling, September short-side returns over 10% and short selling replacing at least 40% of the mark-to-market decline of the value of shares shorted. We are looking for a table with betters backing up their bets. There are 16 sub- industries that meet these metrics. The dollar value of the new short selling was a small portion of the mark to market declines of their shares shorted.
The internet and direct marketing retail, systems software, Semiconductor equipment and construction machinery were some of the industries that saw an increase in short selling.