NYSE Short Interest Drops To 5 Month Low

Tyler Durden's picture

It is by now well-known that the general level of the stock market no longer has any impact on retail flows in or out of stocks, having become a one way street out of equities beginning roughly six years ago, with the proceeds invested into fixed income (a paradox much to the chagrin of the Fed which keeps hoping positive equity dividend yields will prove a sufficient motive for investing in a world where interest income is now zero and has taken away $400 billion in purchasing power each year) and only institutions, mostly Primary Dealers and other entities "close" to the Fed's freshly printed money, and central banks are propping up the stock market.

However, one place where the S&P level still does have a modest influence is the number of shorts in the market, which are strategically used by repo desks and custodians (State Street and BoNY), to force wholesale short squeezes at given inflection points, usually just when the bottom is about to drop out. The problem is that even short squeezes are increasingly becoming fewer and far between, for the simple reason that the Fed has managed to nearly anihilate shorters as a trading class with its policy of Dow 36,000 uber alles. This was demonstrated with the latest NYSE Group short interest data, which tumbled to 13.6 billion shares short as of the end of September, or the lowest since early May, just as the market was swooning to its lowest level of 2012 to date.

Since the Fed desperately needs inexperienced, "weak-hand" shorts to reenter stocks to facilitate its "transmission mechanisms" (all of which can be summarized in two words: "stock ramps"), and since the only time shorts re-enter the market, even against their and everyone else's better judgment, is just after major market tumbles, expect the Fed to prepare for some more stock market acrobatics whose sole purpose is to get a fresh batch of shorts in, just so the squeeze trap can be replayed over and over, as it has been for the past 4 years.

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LarryDavis's picture

Great time to buy interest rates are heading negative inflation all time high one sixth of america on food stamps etc. Buy this fucking market

tsx500's picture

i agree ... wildly BULLISH  !!!!     BUY BUY BUY  !!!!!!            ; )

Popo's picture

And whoever's goosing the market into the election is surely going to keep goosing it after the election, right?   Long forever and ever and ever, oh boy!   And puppies!

BUY BUY BUY!

walküre's picture

based on the 2nd chart the only conclusion would have to be UP, UP, and AWAY!!!

maybe Tylers can offer a short interest chart going back 20 years

Lore's picture

"expect the Fed to prepare for some more stock market acrobatics whose sole purpose is to get a fresh batch of shorts in, just so the squeeze trap can be replayed..."

We get through the rigged election, and then through rigged Christmas retail sales, and then maybe reality will be permitted to re-assert ~ late January post-Fiscal Cliff et al.?

Here's a forecast: thousands upon thousands of layoffs and Dow down ~50% by end Q1.  We are very close to Peak Can Kickage.

Clever Name's picture

+1 for "Post Can Kickage"

LawsofPhysics's picture

Yes, and commodities will go right alone with it. - FAIL.

SeverinSlade's picture

We have less than 2 months until the debt ceiling is breached and S&P downgrades the US once again.  Fun times after Nov. 6th coming.

fonzannoon's picture

there seems to be some shorts getting scalped today. 

gjp's picture

Indeed.  Lest anyone think the mad printerz have lost any of their powers to destroy, they conjure up another stick save, big-beta floatation, commodity-raiding kind of day that makes a banker cream his jeans.

And for the icing on the cake, someone plants a headline on Google saying "Nobel Shows How Economists can Save Lives" ... the gall and hubris know no end

asteroids's picture

Shorts need to have very short hold periods and never hold overnight.

Ham-bone's picture

Nobody's net short anymore...just a hedge for those levered longs.  As market goes up 90% of portfolio advances and hedge is just cost o doing biz. 

Zen Bernanke's picture

bernanke will have a an impossible time selling his keynesian monetary philosophy to Romney, who actually has an understanding of what makes an economy work. 

fonzannoon's picture

even if that were true, which i doubt, ben would threaten the whole system and mitt would fold. there is no going back.

TPTB_r_TBTF's picture

Romney will do as he is told, ... or else...

walküre's picture

Romney, who actually has an understanding of what makes an economy work.

You forgot to add /sarc

Unless you're the sort of person who thinks that vulture capitalism adds value to any economy. Do you?

Lore's picture

Pretty sure he's kidding.

Ham-bone's picture

The people have spoken...off with his head!!!  ZH group think buttons never lie...

CPL's picture

LOL

 

Like they would put anyone that doesn't hold the line in the chair.  You have more to worry about if either sock puppet is installed into the Oval office.

 

And by installed, I mean disposable and replaceable software.

NotApplicable's picture

Hey, this shit corrupted my registry!

Stupid bloatware.

slaughterer's picture

WTi round-trip today: LULZ.

**

High-beta zombies coming back to life today. 

**

Magic SPY 144.

**

What happened to silver today?

Lost Wages's picture

Don't worry about silver. The famed Wynter Benton Group is supposed to spring into action Oct 16-23. ;)

http://www.silverdoctors.com/wynter-benton-group-states-will-demonstrate...

LawsofPhysics's picture

I saw that, so are they going to crash silver, before taking it above $50?  These guys write like a 12-year old on mom's computer.

Awakened Sheeple's picture

Pump and Dump... I think we're dropping below the 50 day MA by weeks end. As I said earlier, someone with deep pockets GTFO of PMs. Risk off bitchez!

zerozulu's picture

This is OT but I think intresting for ZHers.

U.K. PM signs deal on Scotland independence referendum

Scotland moved a step closer Monday to a vote on independence after Scottish and British leaders signed a deal laying the groundwork for a popular referendum that could radically alter the shape of the United Kingdom.

 

http://www.ctvnews.ca/politics/u-k-pm-signs-deal-on-scotland-independenc...

http://www.huffingtonpost.com/huff-wires/20121015/eu-britain-scottish-in...

 

Lore's picture

Wow. They gonna punt the monarchy. Who's next?

CPL's picture

Installing a puppet regime like the Robert the Bruce clan and James the Ist kicked their own people's teeth in.

 

Scotland will have more to worry about, not less.  Their politicians are just as crooked as the British ones.

otto skorzeny's picture

and so are their teeth.

tawse57's picture

Non story - the Scots are getting petrified that the English, Irish and Welsh will have their own referendum to kick Scotland out.

The Scottish Nationalists are a vocal but tiny minority. They have tried to get the referendum question to favour them - a sort of independence lite where they get the power without the responsibility.

London has told them to feck off and said that it is an all in or all out question.

Given the choice between staying in the UK and having an economy or being indpendent and run by a bunch of nationalists with no economy then the majority of Scots will vote the right way.

Just you guys wait till Texas wants to vote for independence.

 

:)

 

 

ekm's picture

Primary Dealers are stuck with stocks nobody wants to buy. Period.

Their only option is to buy what mutual funds are  forced to sell due to withdrawals. Period.

 

We'll have 1987 repeat very soon. The longer it goes, the sharper the fall. Period.

It's called a Pyramid Scheme. It never changes. The stock prices will drop as fast as Madoff funds dropped.

tawse57's picture

Spot on - primary dealers were hoping to sell their shares to retail but retail has run and hidden behind the sofa and refusing to play.

I am not sure what will trigger this crash - surely some fund or bank has to blink first and start the panic?

e-man's picture

It's the proverbial hot potato. Just like certain investment banks ending up with balance sheets full of MBS when the bottom fell out in 2008.  No one knows what the trigger will be, but the run to get out the doors will be measured in hours. 

LawsofPhysics's picture

Correct.  I miss 1987.  Shit, at least people went to jail during the S&L crisis.

otto skorzeny's picture

plus the music was a hell of a lot better.

elams1894's picture

"Take my hand and we'll make it i sweeear,

OH   OH   We're Livin on a Prayer!"

 

Number 1.. 1987!

LarryDavis's picture

when should i start my short? whats the best shorts? I actually have gotten some great simple but effective trade ideas from Zero Hedge. Keep up the good work contrarians.

buzzsaw99's picture

A banker left a picnic basket out then hid in the bushes and waited. Along came a bear and the banker grabbed it and fucked it real hard. The next day the banker left another picnic basket and the same bear came by so the banker fucked it again. The third day the banker left a picnic basket out and along came THE SAME BEAR. The banker came out of his hiding spot and said: "Now I know you aren't here for the fried chicken. BREE-HE-HE!!"

Itch's picture

A bear is a great shag, you need to get a good grip of it though, if that thing isn't in the mood its all over for you.

fonzannoon's picture

ekm 1987 without the recovery after? 

some guy on cnbc just said he wants to be in anything except gold and bonds and that every dope out there wants to buy gold. funny shit.

ekm's picture

A repeat of 1987 seems inevitable to me, knowing the structure of a Pyramid Scheme.

Let's think about the recovery after the market craters.

 

tasmandevil's picture

does the definition of short interest include inflation and expectation of future inflation?

silly question, maybe..

CrabGrassKila's picture

Pavlov and Benji.......

Ring a Ding-Ding

 the Pooches begin to salivate........ 

the house, it begins to shake,

Happy Crackheads, getting Baked....

 

 

djsmps's picture

I love feel-good stories like this headline from CNBAPPL: Decline? US Will Add Five Million Millionaires By 2017

LawsofPhysics's picture

Yeah, and ever single one will have an "obamney phone".  Shit, with infinite QE we are all going to be billionaires soon.

otto skorzeny's picture

the rest of headline will read "and Record Number on Food Stamps for 120th Consecutive Month"-because-you know - huge wealth disparities in a society usually work out soooo well.

e-man's picture

A more honest headline would have read: "Decline? US Will Add More Than Five Million Unwitting Millionaires By 2017"

DowTheorist's picture

I derive two practical observations from the article:

 

1) So many people (money)  pulling out of stocks and piling into bonds seems to me like a contrary indicator.  Markets are made to fool the largest majority of participants. So I see it bullish long term for stocks (i.e. 1-2 years).

 

2) Don't fight the Fed and don't be short at the wrong time.

 

One thing is clear, as per Dow Theory the stock is in a bull market since June 29. We know that ca. 70% of such bull market signals end up with profits. So in spite of secondary corrections, the odds favor profits in the medium (4-5 months) and longer term (1 year).

 

There are 5 reasons to be long term bullish on the stock market:

http://bit.ly/On8jUg

 

Furtermore, the pullback (secondary reaction) is not something to be feared, but welcome since:

a) if it continues (i.e. 5% pullback) it may provide a good entry point for latecomers still on the sidelines.

http://bit.ly/OYjmUd

http://bit.ly/R4p0AV

b) for those already "in," with a long position, the secondary reaction will provide a higher trailing stop, thus helping to lock in profits.

http://bit.ly/OAhUX

Quinvarius's picture

No banking panic, no market crash.  A banking panic is not possible with the Fed in global bailout mode.  The market has been sitting here for 12 years.  The money supply has tripled.  0% credit.  QEX.

My thesis is bullish.