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Shorts Signaling Short-Term Bottom

The number of new shorts being placed has been falling -- a sign to some that the market may be closing in on a bottom, at least for the near term, according to Locatestock.com CEO John Tabacco.

Locatestock.com, which locates stock for short sellers, says its volume from new shorts fell to an average 305.1 million shares last week, and today the number was 301.8 million. The 20-day average had been 316.4 million, 4.6 percent higher than today's volume.

"The trend is clearly away from shorting," says Tabacco.

"It's telling me that it feels like the pressure is off. To me, when we see the markets are up and our volumes are down, that's telling me that maybe it's close to a bottom in stock prices," Tabacco said during the trading day Tuesday -- when the Dow was still registering gains.

"They're still taking pot shots at names that are overvalued and they're not across the board shorting everything," he said.

This drop in volume comes after January, when Locatestock saw one of its heaviest volume days in three months on Jan. 30. The 20-day average volume on that date was 325 million.

"I don't think the bears have run for the hills for the winter, but for right now they are seeing a bottom, and there might be some short-term opportunities to bounce," Tabacco said.

Among the stocks shorts were most interested in last week were bond insurers Ambac and MBIA, and the iShares MSCI Emerging Markets ETF .

Questions? Comments? marketinsider@cnbc.com

  • Patti Domm

    Patti Domm is CNBC Executive Editor, News, responsible for news coverage of the markets and economy.

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