Not Enough Natural Sellers

The most disconcerting thing about Friday's trading was that the market did not manage a rally on the day after Thanksgiving. And that means the put-buyers were out in full force.

Yes, the put/call ratio rose once again Friday, proving that folks, at least on a daily basis, still have one eye on the exit doors.

However, the members' short ratio is now at 42%. The last time it was this high was May 1. There is no bell-ringing number that announces, "We're here," but the members only increase their short positions if the market sends them in that direction.

The members, like the specialists on the New York Stock Exchange, tend to be the buyers and sellers of last resort. When everyone is selling, they are buying. When everyone is buying, they are selling.

Oh, it doesn't happen immediately. The buying or selling must go on for an extended period of time, exhausting all "natural" buyers or sellers first. But eventually someone has to take the other side of the customer's trade, and these are the folks who do it when there is no natural buyer or seller.

This is not a sentiment survey; it is not a matter of what people are saying they think about the market. Instead, it is a matter of what they are doing, and in this case, there are too many buyers and not enough natural sellers.

For the entire rally, there have been natural sellers. First, the bears start selling, and then the more aggressive bears start shorting. Then there comes a time when the sellers have sold and the shorts no longer want to short. That's where the members and specialists come in. If the demand to buy is so strong, eventually the members will short stock to the buyers.

---

At the time of publication, Meisler had no positions in any stocks mentioned in this column, although holdings can change at any time.

Helene Meisler writes a daily technical analysis column and TheStreet.com Top Stocks. For more information, click here. Meisler trained at several Wall Street firms, including Goldman Sachs and SG Cowen, and has worked with the equity trading department at Cargill. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. She appreciates your feedback; click here to send her an email.