Happy Friday, one and all. We hope you had a great trading week, but if you didn't, at least the weekend is here and that always helps. Of course, if you've been trading alongside the SCN newsletter's portfolio then you DID have a great week. Our ANI Pharmaceuticals (ANIP) position has been on a roll for the past few days, and the Astec Industries (ASTE) has been on a tear as well. We'll take a quick look at ANI in a moment and offer some updated advice on how to handle it. There's something more pressing to get out of the way first. Even if you only follow the market at arm's length, I'm sure you've heard someone out there use the term "short covering" at some point within the past couple of months. As is so often the case though, those doing the talking failed to provide any context or data for their theory. That's not to say these folks are wrong. I'm just saying, there's a lot more so-called conventional wisdom floating around in the market's ether than there are cold, hard, proven facts. So, to give you the information someone else probably should have given you when they posed their premise, today I'm going to take a detailed (though concise) look at the market's trailing short interest, just for the sake of getting it straight. Most of you already know what short-selling and short interest is. Just in case some of you aren't familiar, however here's the deal... Conventional trades are founded on a "buy low, sell high" mentality, meaning you buy a stock that looks like it's going to move higher during whatever timeframe you plan on holding it, and then you sell it when that stock has likely hit its highest value for whatever timeframe you're worried about. This isn't the only sequence you can use to make money trading stocks, however. You can also "sell high, buy low", meaning you sell a stock (yes, a stock you don't actually own) at a high price, and then buy it (to cover your short position) later at what's hopefully a lower price. This is called short selling, and though it's riskier than conventional stock ownership, it's also a way to make money even in a bearish environment. So what is short interest? That's just the portion of each stock's float - the number of total shares in circulation - being held as a short trade. On average it's a small number... usually less than 3% of the total float. When you're talking about nervous investors with itchy trigger fingers who don't want to be caught on the wrong side of a strong bullish move from the market, however, that 3% short interest can create a heck of a lot of volatility. Why's that? Eventually, all short trades have to be closed out with a repurchase of the stock in question. So far so good? Great. Now, here's why it matters - the stronger the short interest (the bets against a particular stock or against the overall market), the higher the potential is for a short-covering rally. See, traders can't afford to hold short trades indefinitely the way they can with buy-and-hold "long" trades. The worst-case scenario for a long trade is only a complete loss of the money invested. The potential loss for a short trade is theoretically infinite, since a stock can move higher forever. The problem is compounded by the fact that buying a stock back to cover a short position creates more demand for that stock, pushing the price even higher, and making it even more painful for others with a short position to pull the plug, compelling them to finally buy back their short shares, which puts even more bullish pressure on stocks... you get the idea. It can become a nasty Catch-22, fueling a so-called short-covering rally that has nothing to do with investors getting into stocks for bullish reasons, but instead has everything to do with people getting out of short trades until the bulk of those short positions are exited. Sorry for the long-winded explanation, but we just wanted to make sure all of you knew what was at stake, and why we've heard the term short-covering rally so much lately. The broad consensus is that this recent rally from the mid-May low was highly hated, and inspired a lot of people who doubt the market's future to short stocks, or bet against the market. By so doing, the inordinate number of short positions actually creates a foundation for even more bullishness, as those bears become forced to buy back stocks - and create bullish demand - to cover their short trades. That's why a bunch of people have been expecting even more gains in the foreseeable future even if more gains don't fundamentally make sense. Well guys and gals, I've got some news for you - the short covering rally isn't something we can expect in the near future. The short covering rally was the rally we've seen over the past month or so...at least part of it. There's some (relatively) short interest left on the table to fuel more gains from here, but not a lot. The chart below tells the tale. We've plotted the weekly S&P 500 against the NYSE's short interest data, which is posted every two weeks. Although we don't yet have the mid-June short interest data for the NYSE, we do know the NYSE's short interest has fallen for every two week period since mid-March, and was almost back to January's levels as of the end of May. I'd be surprised if short interest didn't fall again for the mid-June tally, considering the S&P 500 made a solid gain in the early part of the month. To be clear, there's still some short interest to get off the books. It seems like the short interest total is closer to the recent norm than not, however, which should slow the short-covering effort down and as a result possibly slow the rally down. It's also worth noting shorts were being covered like crazy in late-2012, but the market was falling anyway. What's equally interesting is how the recent swelling of short positions didn't coincide with or cause a market pullback that way it usually does. We saw a small blip in late January, but that was it. Traders were betting on a pullback that never happened. Point being, take everything with a grain of salt, 'cause nobody has all the answers all the time. My guess? We've already seen the bulk of any short-covering rally, though a little more could be in the cards. This story is still a work in progress, however, so stay tuned. We just wanted you to have the whole story and context, since nobody else seems to be willing to lay it all out for you like this. And yes, we're going to follow up on this when we get the mid-June numbers. Raising the Stop on ANI Pharmaceuticals.... Again Not that I'm complaining, but I wasn't planning on raising the mental stop on ANI Pharmaceuticals today after doing so just yesterday. Circumstances dictate the decisions, however - not the other way around, and I'd say a big fat 5% jump from ANIP is enough change in circumstances for us to take action. Let's go ahead and protect that 25% profit by raising our stop to $33.12. That was the low (and reversal point) from last week. Note the stock punched through the resistance at $36.30 today, which was a biggie for us. That's all we're going to do with the portfolio's picks today, but look for more updates on those trades next week. We're also not going to bother with a closer inspection of the broad market, as there's no way anything I could do here would hold a candle to what John Monroe did in today's edition of the SmallCap Network Elite Opportunity newsletter. Those of you who receive that newsletter already know today's overarching analysis of all the major indices into one unified outlook demonstrated his genius. For those of you who aren't subscribers to the EO, well, all I can say is, today's edition is worth a look. I suggest using the free two-week trial offer to get a glimpse of it if you're not sure you want to become an Elite Opportunity member yet. Here's how to get it, or cut and paste this link: https://www.smallcapnetwork.com/?vmpd_ckstr[click_track]=Newsletter&vmpd_ckstr_redirect=/pages/SCNEO/v1/