Q: What do you consider high short interest for a stock? is it a certain percentage of the float or something else?
G: Ten days or more of short interest is pretty high in my view, particularly on a stock that only trades a few hundred thousand shares a day. A lot of these big earnings gap-ups are due to a lot of shorts having to run for cover. I am not aware of any study that proves that a stock that is some percentage above the 200-day moving average is going to pull back, or that there is some magic percentage at which they will automatically top out. A general rule is 70% above the 200-day moving average, but if you short a stock when it is 70% above the 200-day it could easily continue to a point that is 90% above the 200-day moving average, handing you a nice loss on the short side.
Shorting or selling is not that black and white, and shorting a strong stock just because it is a certain percentage above the 200-day moving average is not an automatic trade and can be dangerous in my view.