The Last Time The Market Was This Short, Stocks Crashed

Tyler Durden's picture

It is common knowledge among those that prefer to see the glass of aggregate demand always half-full (in need of fiscal or monetary stimulus and thus always time to BTFD) that stocks "climb a wall of worry" and that stocks can't drop if so many people are negative. However, while we are sorry to steal the jam from their exuberant 'cash on the sidelines' donut, the truth is that eventually 'strong hand' short positions build to a point where they dominate and provide the tipping point of weakness in stocks. As Goldman Sachs highlights in the following two charts of short interest ratio (days to cover) and aggregate short interest (dollars), the last time there was this much money short was mid-2007... and that didn't end well.

 

Short interest ratio is at pre-crisis high levels...

 

and aggregate dollars short is now at levels just before the market crashed...

 

Yet another market meme broken by the facts of the data...

 

Charts: Goldman Sachs