NYSE and Nasdaq short interest is up a decent amount since end-April. Nasdaq’s in particular is the highest since March 2016. The index rallied after bottoming early this month. At least until the middle of the month, shorts were staying put. Odds favor they will be rewarded in the days/weeks ahead.
Mid-June, NYSE Group and Nasdaq short interest increased 0.9 percent and 0.6 percent period-over-period to 15.9 billion and 8.9 billion respectively (Chart 1). Most recently, short interest bottomed end-April at 14.9 billion and 8.5 billion – up 6.9 percent and 4.3 percent, in that order. That was when US stocks were in the process of peaking.
The Nasdaq composite, for instance, made an all-time high of 8176.08 on April 29, before dropping to 7292.22 on June 3, down 10.8 percent. As the index came under pressure, shorts added. The index bottomed early this month, but at least until the middle of the month there was no sign of short squeeze.
It is possible Nasdaq shorts cut their exposure in the current period. Until the 14th, the index was still under the 50-day moving average, which gave away as soon as the second half began. By Thursday last week, the index had rallied to within 1.1 percent of its record high (Chart 2). But then again, because it failed to post a new high, it is equally possible shorts stayed put. In the latter scenario, odds are growing they will be rewarded in the days/weeks ahead.
After major equity indices bottomed early this month through last week’s highs, they all rallied strongly, pushing the daily chart in particular into gross overbought territory, which is currently being unwound. On the Nasdaq (7909.97), the 50-day is merely 0.6 percent away. A breach of the average can self-fulfill, putting the index under further pressure. There is decent horizontal support north of 7600.
If things evolved this way, this would be a wasted opportunity for bulls. As Chart 1 shows, Nasdaq shorts in recent months have gotten aggressive versus their NYSE peers. Nasdaq short interest currently is the highest since mid-March 2016, while NYSE’s is at a three-month high. A squeeze right here has the potential to provide quite a tailwind to the Nasdaq, but right here and now, it is not looking probable.
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