Short squeeze in Citigroup and GE may have helped rally

At of the end of February, the short interest in Citigroup (C) and General Electric (GE) had reached tremendous levels, compared to the end of last month. Shares short in Citi were up 11 percent to 223 million, and the short interest in GE has risen10 percent to 183 million.

In the face of those negative bets, Citi said it had made money in the first two months of the year, while GE raised debt in the open market without resistance, and the short sellers hit the exits to cover their positions. That action clearly helped both stocks moved up as the shorts sold their positions to pay back the shares they had borrowed to make their negative bets.

Short covering, however, does not go on for weeks, or even days. Most short sellers won't have the stomach for keeping their positions, especially if they believe there will be more good news out of the two companies.

To a large extent, that is bad news for Citi and GE shareholders as the stocks will now have to move up on their own, based on the fundamentals of their businesses and analyst reports.

The trampoline effect of having a lot of shares sold short is over.

Douglas A. McIntyre is an editor at 24/7 Wall St.

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