There comes a time every once in a cycle when the market gets too invested in either a bullish or bearish view, and just like any other physical marketplace, the stock market can then trigger a major shift to the opposite end of this concentrated view. Investors can imagine the bottlenecks and mania that would be caused by this shift, which is why keeping track of sentiment gauges is so important.
When it comes to individual stocks, one of these gauges can be the amount of short interest or how many of the company’s shares are held in short positions. Now, short selling is a complex process of borrowing stock to sell (hence being short the stock), which would then involve buying back that same stock in order to close the position. This is why stocks with high short interest are important to watch since a turn to the upside could trigger massive buying activity.
