Specialist Short Sale Ratio

DEFINITION of 'Specialist Short Sale Ratio'

A ratio used to determine the sentiment of specialists on the New York Stock Exchange (NYSE) versus the sentiment of the market as a whole. The specialist short sale ratio compares the total number of shares sold short by specialists on the NYSE to the total number of shares sold short by all participants on the NYSE. Since specialists are sophisticated market participants with a unique level of information about trading activity, technical analysts reason that by looking at their behavior they can gain insight into underlying trends in the market.

BREAKING DOWN 'Specialist Short Sale Ratio'

Interpretation of the specialist short sale ratio requires a technician to first determine the "normal" level for it. Then the technician will look for significant deviations from the normal level, which will indicate a change in sentiment.
Since specialists seek to make money for their own account, specialists are expected to increase their short sales relative to the market when they have a bearish sentiment. Conversely, if specialists are bullish, they will decrease their short selling. Thus, increases to the specialist short sale ratio are a bearish signal, while decreases are a bullish signal.