As I noted earlier in the day, housing and housing-related stocks were participating in a modest rally, in what seemed to be off some data that came in below expectations. I thought this wasn’t all bad, because it implied that the general housing market might get better somewhat sooner than expected as excess inventories aren’t as under-siege from new homes flooding the existing inventories.

Then, from 2 pm onward, USG (my largest stock holding) surged to close up 6.5%. With USG announcing earnings next Tuesday, I thought this might be due to some short covering, given that USG reported terrible earnings last time, had nothing positive on the conference call, and rallied anyway. The chart below shows how the reported short position has changed over the last year (pink), relative to the stock price (blue). Because USG has about 99 million shares outstanding, shares short as a percentage is easy to figure out as well.

Contrast this with a stock like Sherwin-Williams (SHW), which hasn’t seen any abatement in the short interest - in fact, quite the opposite. Sherwin, it should be noted, will report earnings the same day as USG. I like Sherwin as a company, but I continue to think there are better places to invest your money in that line of business, because Sherwin is a late-cycle play on housing, and we’re still tentatively feeling a recovery in segments that will benefit earlier on.

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