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How can I best use short interest data to aid in the selection of a long position?

On one hand, a low short interest ratio would seem to indicate that there is not a lot of sentiment that the price will decline. On the other hand, a high short ratio is viewed by some as a bullish condition since the resulting sales to cover the short positions would drive up the price of the stock.

Or, is short selling mainly an arbitrage tool which has little if any effect on long term performance?

I would appreciate your feedback.
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You can look at short interest three ways:

Short interest indicates that the company is in trouble. Carefully research any company with high short interest before buying.

High short interest can cause a short "squeeze," as you described. But this only occurs if the price of the stock rises; a falling stock squeezes only those holding on margin. Thus, short interest increases the volatility, but does not inherently drive the price up.

Lastly, shorts have absolutely no long term effect on a stock. If you are thinking long term buy & hold, then I wouldn't really look at the data.
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