US Markets Unsettled, Bears Rule
$SPY, $DIA, $QQQ
US stock Bears are growling. Unfazed by 3 years of money-losing bets against stocks, short sellers increased their Bear bets in June to the highest marks since the 2008 financial crisis.
For now the move has proved well-timed as a Goldman Sachs Group Inc. index of most-shorted stocks slumped 10% over 10 days through Wednesday, 1 of the worst decliners since Y 2009.
It is a victory for short sellers, who borrow stock with the aim of replacing it once the price falls. They are reloading as Chinese shares collapse just as the Fed is preparing to raise interest rates.
Bear betting against stocks has been a losing strategy since 9 March 2009 as the Standard & Poor’s 500 Index rallied more than 200% and all but 22 members climbed. The HFRI Short Bias Index of equity hedge funds has fallen in 5 of the past 6 years, a performance not seen in 25 yrs of data.
The number of shorted shares increased 3.3% from a month ago to 16.2-B in June, the most since September 2008, according to NYSE data.
Turbulence in China markets is adding worries about American stocks, where momentum is slowing and the savvy money exits.
As participants retreat from risky assets, stocks with the highest Short interest suffered from some of the worst declines.
In Goldie’s basket, made up of the 50 most-shorted companies on the Russell 3000 Index, slipped in all but 2 of the last 10 sessions. The 10% decliner over the stretch matched the fall in October 2014, which was the biggest since Y 2011.
Rising short sales sent a gauge of hedge fund manager Bullishness compiled by Evercore ISI down 1.3% over the past month, putting the measure of Short and Long exposure close to Neutral.
In futures tracking the S&P 500, Bearish positions outnumber Bullish ones by the most in 3 years.
A lot of momentum names (leaders) are rolling over in here, Bears rule.
Stay tuned…
HeffX-LTN
Paul Ebeling
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