Short Interest

Net Euro Shorts Rise Again In Past Week - Tom Stolper Bullish Call On Euro Imminent?

Just in time for the latest headfake out of Europe where sentiment at least on thus Sunday afternoon is that Greece is somehow saved (on a rehash of an old story, namely that the ECB welcomes the combination of the EFSF and the ESM - something that Germany has previously expressly refused to comply with, and something which is utterly meaningless - where will the money come from - Italy and Spain? Or will China invest more than the single digit billions in EFSF bonds raised to date?), we look at the CFTC Commitment of Traders for an update on speculative sentiment. There we see that just as the general public was starting to comprehend that Germany may let Greece fail after all, a fact confirmed by Tom Stolper's most recent flip flopping on the EURUSD, which caused the Goldman catalyst to end his call for a rise in the EUR currency (and for ZH to take the opposite side as usual, a trade which is now 160 pips in the money-  recall "Needless to say, we are now closing our short reco at a profit 9 out of 9 times in a row, and doing the opposite - i.e., going long."), speculators ended the two consecutive weeks in reducing net short exposure, and the week ended February 14 saw net short interest rise again from -140.6k to -148.6k. So if one is wondering what the weak hands are doing that just got burned shorting the pair in the past 10 days, the 100 pip move higher (which has sent the ES over 1370 and the DJIA futures over 13K) this afternoon explains it. For those wishing to bet on a contrarian outcome, which in Europe is pretty much a given, our advice is to wait for Tom Stolper to issue his latest EUR bullish forecast, which will likely be forthcoming any minute, and which will cement the FX strategist's place in the FX anti recommendation hall of fame.

The Shorts Have Left The Building

Following the market's "sudden" realization in December that the ECB had been quietly pumping $800 billion, or more than the entire QE2, into the market (sterilized? yeah right - when one lends out cash in exchange for worthless crap nobody else wants, and certainly not the Bundesbank, it is not sterilized), it became all too clear that the market's response in 2012 would be a deja vu of 2011, if only for a while. Sure enough 2012 has been a tic-for-tic transposition of the market move in 2011. The only question is how far it would go, before, like back in 2011 again, it rolled over. To get a sense of one of the best indicators of an overextended rally, we go to the NYSE whose short interest update confirms that the rally, at least based on ongoing short squeeze dynamics (which as we said in mid-January has been the best strategy for a bizarro market) is now over. Sure enough, according to the latest data, short interest has collapsed from a multi-year high in September of 16 billion shorts, which coincided with the market lows, to essentially the lowest print seen in the past 4 years at 12.5 billion shares, a level which has not been breached once in the New Normal phase of market central planning. In other words, those who look at short interest and covering as a market inflection point, the time has come to take advantage of the short mauling, and bet on the market rolling over. That said, all it takes is for a central bank chairman somewhere to sneeze the wrong way, and this best laid plan will promptly collapse.

Guest Post: Complacency Risk Is High

vix-vs-sp500-012312As I was writing this past weekend's newsletter "A Technical Review Of The Markets" it really dawned on me just how complacent investors have become on the economy, the markets and risk in general.  The mainstream media, and most of analysts, are looking at recent improvements in the economic data as a sign that the economy has begun to make a turn for the better.   This view is further supported by the rise of the stock market. With a couple of breadcrumbs, a sprinkle of "hope" and a cup of optimism - analysts, economists and investors have whipped up the perfect concoction by extrapolating recent upticks into long term future advances.  However, this is a game that we have seen play out repeatedly before. 

Treja Vu: Bond Market Starts Year With Third Consecutive "Dash For Trash" Surge

A few days ago, we noted how in light of the most recent temporary bout of market insanity, which has seen the worst of the worst companies broadly outperform risk, one should go long the 30 most hated companies in the US as determined by the short interest to float ratio. We ourselves are unsure if this was a mock recommendation, or the only way to make money in a time when short covering is the only viable trading "strategy." Now as it turns out, precisely the same approach of pursuing the biggest losers has worked in the bond world as well. As the following graphic from Reuters shows, the three best performers of the year in rates, is 10 Year paper from Ireland, Italy, and, yup, Greece, all of which have returned over 4%. The US? Down 0.7% YTD. Why the divergence? Simple - the market is fully positioned for continued massive balance sheet expansion out of Europe which at least for the time being appears to have been passed the baton of monetary irresponsibility. At least that is what the market prices in. That and some ridiculous amount in one the next 3 year LTRO next month (which however does nothing at all to fix solvency, and in fact merely makes the day of reckoning even more painful when it starts - what happens in 3 years: the ECB is forced to do a €100 trillion 7 day MRO every week to roll the entire European balance sheet on a weekly basis?). Whether the market be disappointed, we will known in just under 6 weeks. Either way, here is what bond returns look like Year To Date. For anyone hit by a case of treja vu, you are not alone: this is precisely the same pattern we have seen for the third year in a row. What happens next is well known.

Print-Or-Panic, TrimTabs On The Market's Meltup

As retail investors continue to appear significantly pessimistic in their fund outflows ($7.1bn from US equity mutual funds in w/e January 4th - the largest since the meltdown in early August) or simply stuff their mattresses, David Santschi of TrimTabs asks the question, 'who is pumping up stock prices?' His answer is noteworthy as a large number of indicators suggest institutional investors are more optimistic than at any time since the 'waterfall' decline in the summer of 2011. Citing short interest declines, options-based gauges, hedge fund and global asset allocator sentiment surveys, and the huge variation between intraday 'cash' and overnight 'futures market' gains (the latter responsible for far more of the gains), the bespectacled Bay-Area believer strongly suggests the institutional bias is based on huge expectations that the Fed will announce another round of money printing (to stave off the panic possibilities in an election year). The ability to maintain the rampfest that risk assets in general have been on (and the cash-for-trash short squeeze that has been so evident) must be questioned given his concluding remarks.

Bizarro Market Winning Strategies 101: Go Long The Most Hated Stocks

We discussed the bullish themes (and Nomura's skepticism) earlier today but as the S&P 500 cracks 1300 once again and banks (GS cost-cutting sustainability?) and builders (NAHB Index? context please) are off to the races once again, we thought it might be appropriate to see just how well the worst of the worst has outperformed the market. Using our standby GS index that tracks the most shorted names in the broad market, we see that year-to-date, the most-shorted names are up 5.8% against the Russell 3000 which is only up 4%. Furthermore, since late yesterday, the most-shorted names have doubled the market's performance (+2.1% vs +1% from 1430ET yesterday).

What Rosenberg Is Looking At - Rolling Margin Debt Has Gone Negative

With market dynamics continuing to be virtually identical to the start of last year, many struggle to find what incremental events at the margin may  determine what is not priced in by the market (because apparently everything else is). As we pointed out recently, one such potential factor is that short interest on the NYSE has plunged to practically multi-year lows. And yet the melt up has continued indicating the short covering has come and gone, and at this point it is incremental buying that is probably driving stocks. Yet even that may be ending: since we are looking at the margin, it makes sense to present David Rosenberg's observations on what it is that he is looking at the moment, which appropriately enough, is NYSE margin debt, whose 12 month trailing average has just turned negative: traditionally an important inflection point.

Video And Post-Mortem of Spectacular Carnival Cruise Liner Accident Off Tuscan Coast

To those who woke up on Saturday to images of a massive cruise liner keeled over following a very peculiar Friday night accident off the coast of Italy, no, this was not a prop for the latest James Cameron movie: it is the Carnival Corp's Costa Concordia, which carried over 4,200 passengers and crew, and foundered after hit a submerged rock off the Tuscan  island of Giglio in very calm conditions. At last count 11 passengers and 6 crewmembers were missing, with at least 6 confirmed dead as of last night. Here is what is known as of right now.

Guest Post: Why QE3 Won't Help "Average Joe"

qe-stocks-yields-011212Are the markets already front running a potential announcement of a third round of Quantitative Easing (QE 3)?   Maybe so.  We had expected QE3 at the end of last summer as the economy weakened substantially from the impact of the Japanese earthquake/debt ceiling debate/Eurozone crisis trifecta.  However, with political pressures running high due to the raging battle in Congress raising the debt ceiling there was little support from the public for further intervention.  Furthermore, with inflation, as measured by CPI, already outside of the Fed's comfort zone, the Fed opted to institute "Operation Twist" (O.T.) instead. With the Euro-Crisis on the broiler, another debt ceiling debate approaching, the U.S. economy struggling along as Europe slips into a recession and corporate earnings being revised down there are plenty of reasons for stocks to decline in price.  Yet, they have continued to inch up.  With short interest on stocks having plunged in recent weeks it certainly sounds like the markets are betting on something happening and soon.

Plunge In NYSE Short Interest Explains Recent Market Rally

UPDATE: As an observation, QQQ Short-Interest is at 11 year lows (January 2001), down 43% into year-end

Curious what has provoked a vicious year end (and 2012 year beginning) Santa Rally, which until today had seen the S&P trade higher on 12 out of 15 consecutive days? Wonder no more: the reason is the same it has always been - year end short covering, which in turn has spilt over into the new year's momentum chasing HFT brigade and the occasional retail momo who still has some cash left after covering commission costs. According to the latest NYSE biweekly update, the short interest as of the end of 2011 was a modest 12.8 billion shares, a sharp drop from the 13.4 billion and 14.2 billion 2 and 4 weeks prior, and certainly a very far cry from the over 16 billion shares short which market the market bottom in late September. Also, for anyone wondering why so far 2012 is an identical replica of 2011, decoupling and all, look no further than the SI data as of early 2011 - SSDD. Short covered, and only as the year unwound did they dare to challenge the central banks and to increase their shorting activity.

Goldman's Stolper Speaks, Sees EUR Downside To 1.20: Time To Go All In

By now Zero Hedge readers know that there is no better contrarian signal in the world than Goldman's Tom Stolper: in fact it is well known his "predictions" are a gift from god (no pun intended ) because without fail the opposite of what he predicts happens - see here. 100% of the time. Which is why, following up on our previous post identifying the record short interest in the EUR and the possibility for CME shennanigans any second now, it was only logical that Stolper would come out, warning of further downside to the EURUSD (despite having a 1.45 target). To wit: "With considerable downside risk in the short term, within our regular 3-month forecasting horizon, the key questions are about the speed and magnitude of the initial sell-off. If we had to publish forecasts on a 1- and 2-month horizon, we could see EUR/$ reach 1.20. In other words, we expect the EUR/$ sell-off to continue for now as risk premia have to rise initially." In yet other words, if there is a clearer signal to go tactically long the EURUSD we do not know what it may be. We would set the initial target at 1.30 on the pair.

Guest Post: By the Pricking of Equity's Thumbs, Something Wicked This Way Comes

Commodities such as copper have led the market for years; recently they've rolled over while the stock market surges higher. Once again, either historic correlations have been decisively severed or there is a gargantuan divergence that's about to be resolved. Sentiment readings are firmly in extreme bullish territory, but hey, maybe the market will reward the majority with a rally that feeds on rising complacency. And maybe the truism "volume is the weapon of the bull" is also voided, as low volume rallies may well lead to lower-volume rallies. The market has been acting as if all these signs are bullish. Maybe, maybe not. Meanwhile, the witches are cackling quietly over their bubbling brew, and it certainly sounds like some evil is being conjured up.

Presenting Six Views Of The EUR

As EURUSD leaks very gently lower into the new year (but stocks popped excitedly across quiet European markets that lacked a bond market supervisor to keep them honest), we thought it might be interesting to look at the relative strength of the Euro against six different measures. From FX option risk-reversals to ECB's European Bank Lending statistics, QE and sovereign risk relationships to Fed/ECB balance sheet dynamics, and finally from futures commitment of traders data to EUR-USD swap spread frameworks, the results are unsurprisingly mixed with a bias towards EUR weakness. Between the European auctions (and redemptions) of the next two weeks, and the FOMC meeting on the 24-25th January, we face quite a rude awakening from the low volume holiday week malaise.

No New Shorts In Early November As NYSE Short Interest Drops To 3 Month Low

Following the market drop in early November, it was widely expected by most, us included, that stock shorts would pile in once again, only to be burned by moves like today's, which is more of an attempt to flush out even more shorts by hitting limit pain thresholds, than buying on any actual fundamental improvements. Curiously, as the just released NYSE data, the short interest at November 15, not only did not increase in the previous two week period, it dropped to a 3 month low of 14.1 billion shares, just down from October 31. Which means that there were no new weak hands, and that all the algos who are pushing the market higher on hopes that short covering will take it even higher once a limit waterfall begins are likely to be disappointed. And with fundamentals completely irrelevant, this data update also likely means that shorts will take this opportunity to reshort the market.