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Secondary Tidal Wave! Can The Markets Handle It?

It's a good sign: corporations are taking advantage of the 35 percent gain in the S&P 500 from the March 9th bottom to sell an ocean of secondaries.

But look at the action in the last two days: the markets are having some trouble digesting all the new shares.

According to TrimTabs.com, $24.5 billion in secondaries were issued in May through Friday.

Add in the secondaries from Ford, US Bancorp, Bank of New York Mellon, and Anadarko in the last 24 hours, and you have another roughly $6 billion.

Bottom line: about $31 billion in secondaries through May 12th.

By comparison, we saw only $24 billion in secondaries for the entire month of April.

Here's what's annoying: at the same time as many companies are selling stock to the public, corporate insiders, on the aggregate, have SOLD $1.2 billion of their stock.

And that doesn't include the stock that six GMexecutives announced they had sold on Monday,in fact the 6 have now liquidated ALL the shares they own.

GM shares are down 22 percent this morning to a 76-year low.

Meantime, the evidence is in; shorts did indeed cover many of their positions.

We noted how many hedge funds were positioned short going into mid-April, betting that the combination of the stress test and poor earnings would derail the market rally.

They were wrong; neither happened, and many shorts covered their positions at the end of April and the beginning of May, resulting in second leg to the rally.

Symbol
Price
 
Change
%Change
F
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GM
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USB
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Yesterday, the NYSE and NASDAQ published stats that indicated that overall short interest was down about 3 percent, according to Phil Erlanger.

He noted that the NASDAQ had the lowest short interest in 4 years.

As for bank stocks: the amount of stock shorted increased, however because the volume of trading also showed a massive increase, the short interest ratio (the number of days it would take to cover all the stock shorted at the average volume the stock was trading at) dropped.

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Questions? Comments? tradertalk@cnbc.com

  • A CNBC reporter since 1990, Bob Pisani covers Wall Street from the floor of the New York Stock Exchange.

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