I think it depends on the structure of the deals. I can imagine a structure where shorts do signal an imbalance:

    A lends a share from B and promises to give it back in a year.
    A pays B a lending fee of $10.
    A sells the share to C for $100.

Now C will make money if the price goes up by any amount. But for A to make money, the price needs to drop at least 10%.

In your example the bet is between A and B. If the price in a year is say $80 then yes A makes a $10 profit. But in that situation B loses the same amount: they started with $100 of stock, and a year later ended with $10 cash and $80 of stock. Conversely, B makes a profit if the stock goes down by anything less than 10%. This is a really good deal for B!

    In your example the bet is between A and B

But that bet is not symmetrical. If B is of the opinion that the price will stay flat, it still makes sense for them to lend the share because they make a profit of $10.

So we have two participants:

    A thinks the price will go down.
    B thinks the price will stay flat.

Looks asymmetrical to me.

The bet is symmetric, but not around the current price:

    A thinks the price will be under $90 in one year
    B thinks the price will be over $90 in one year

Of course that doesn't explain why they chose $90. If A really wasn't able to find anyone willing to bet that the price would be above $95 or $99 or whatever (despite C wanting to buy the stock for $100!), that would be a signal

    that would be a signal

That is the point. The statement I made which sparked our discussion was "I can imagine a structure where shorts do signal an imbalance".

Wasn’t that the problem with GameStop, the short sells had shorted more stocks than was actually in circulation?

The problem with GameStop was that many redditors thought there was more shorts than total stock available and that this would make it impossible for all of the short sellers to cover their position. In reality, a single unit of stock can be borrowed and sold short multiple times without really causing any problems

That did happen but the latest SEC report showed that it didn’t really have much impact on the price

Identity A borrows a share from B. A sells the share to C in hopes of buying it back later at a lower price. C decides to loan their share to D.

A: has one share loaned out

B: owes A one share

C: has one share loaned out

D: owes C one share.

Two shorted shares from one share