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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

 

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Thu, 05/22/2014 - 13:47 | 4785443 Tenshin Headache
Tenshin Headache's picture

The Big Short, Part Deux.

Thu, 05/22/2014 - 14:01 | 4785483 Dr. Engali
Dr. Engali's picture

It's never going to happen. The next time the market collapses, after it vaporizes they will just shut off the lights and that will be the end of it. But hey... we will still have a MyRa.

Thu, 05/22/2014 - 14:04 | 4785503 icanhasbailout
icanhasbailout's picture

it's just in time to whip out another one of those charts where the "most shorted stocks" are kicking the pants off the rest of the market

Thu, 05/22/2014 - 14:15 | 4785550 flacon
flacon's picture

Actually the Russell 2000 is in a decline:

http://scharts.co/1ma92oM

 

Thu, 05/22/2014 - 14:28 | 4785598 flacon
flacon's picture

Did I see the VIX index hit 11.68 today? It hasn't been that low in more than a year (March 2013). Historically it doesn't stay low, it bounces hard from these levels. S&P could be in trouble here.

http://scharts.co/1mabX0R

Thu, 05/22/2014 - 14:28 | 4785604 NoDebt
NoDebt's picture

If by "crashing" the author means grinding ever higher on no volume, I agree.

Thu, 05/22/2014 - 14:32 | 4785617 Dr. Engali
Dr. Engali's picture

Yes, it's amazing how the fed was able to pop that little bubble without collapsing the broader markets.

Thu, 05/22/2014 - 13:47 | 4785445 Dr. Engali
Dr. Engali's picture

Short sales will be banned at the first moment of any REAL danger.

Thu, 05/22/2014 - 13:49 | 4785451 Tenshin Headache
Tenshin Headache's picture

Only if the wrong people are short.

Thu, 05/22/2014 - 14:02 | 4785492 derek_vineyard
derek_vineyard's picture

give it up ZH......the only way this crashes is when the entire government explodes.   there is no way out. 

Thu, 05/22/2014 - 14:05 | 4785508 icanhasbailout
icanhasbailout's picture

that's the story being chronicled live as we speak... how bout them VA death lists, is that good for morale or what?

Thu, 05/22/2014 - 14:30 | 4785610 flacon
flacon's picture

What are the "VA death lists"? Link please. Thanks!

Thu, 05/22/2014 - 14:51 | 4785719 Save_America1st
Save_America1st's picture

Silver was at this same price point in early 2008 when all hell broke loose.  Silver went to 10 bucks an ounce before it rocketed to 49 over the next 2 years.

Could another major market crash give the E.vil E.mpire one last hurrah opportunity to short the ever-lovin' shit outta paper silver and gold to crush the weak longs and attempt to smash the unsmashable hard-core stacker's will?

I think they could do it...theoretically they could smash it to zero...but that won't happen of course.  Phyzz prices would take over so fast that the rebound would give us all whiplash.  We wouldn't even have time to bitch about the epic dip because it would recover so fast.

I'm sure supply would absolutely disappear and premiums would skyrocket for whatever phyzz there might be available during the brief dip. 

But that would be the last dying gasps of rotten stenchy air from the diseased lungs of the Crimex and phyzz values would then explode to new record highs making 50 look like 10 before things settled down again. 

The new norm would be 50 as a low baseline in phyzz silver and we'd probably be pushing 100+ after a couple years of steady climbing.

That'll be an interesting fucking world whenever it finally happens. 

Not if...but when.  And those days are so much more closer than they've ever been in the history of the world, folks!

Stack the fuck outta silver and be ready to swap some into gold as the GSR eventually starts dropping south of 50:1, 40:1, 30:1 etc.  Swap your way into gold as that ratio drops so that you can balance out your stack (if your almost all Ag, like me), and use that cheap silver to get what is also going to be some amazingly expensive gold!

Thu, 05/22/2014 - 14:59 | 4785766 dontgoforit
dontgoforit's picture

flacon - this ain't Argentina.  The Veterans Administration list of deaths due to clueless beaurocratic bull tripe. 

Thu, 05/22/2014 - 15:23 | 4785919 flacon
flacon's picture

Oh, I thought "VA" was "Virginia". I thought it was a new Alex Jones-ish thing, like the 500 million coffins. 

Thu, 05/22/2014 - 15:58 | 4786103 dontgoforit
dontgoforit's picture

It's cool.  When you think about that FEMA thing with all the coffins....if there were any such plan 'Z' it would send CAT stocks soaring as they sure as hell wouldn't be housing a billion bodies - they'd be mass plowing them into the closest available alley.

Thu, 05/22/2014 - 16:23 | 4786203 WillyGroper
WillyGroper's picture

They're not coffins.

.gov decided shipping containers were too luxurious for the peeps. 

They're the new micro apartments. 

Thu, 05/22/2014 - 14:06 | 4785513 Spastica Rex
Spastica Rex's picture

Agreed.

Nothing lasts forever, a phase change will happen, but no backwards looking analysis is going to correctly predict when.

Outlying events are simply unpredictable by nature.

Thu, 05/22/2014 - 14:20 | 4785575 yrad
yrad's picture

"Phase Change".. I love it.

But, why are you bringing the truth that physics offers into a subject on economics?

Thu, 05/22/2014 - 14:41 | 4785664 bahaar
bahaar's picture

Yes, solid changes to liquid and liquid changes to vapor. But vapor will remain vapor until some external pressure is brought to bear.

Thu, 05/22/2014 - 15:02 | 4785782 Mr Pink
Mr Pink's picture

With the exception of gold and silver of course

Thu, 05/22/2014 - 15:07 | 4785815 Son of Loki
Son of Loki's picture

 

Big investors are betting against housing

 

NEW YORK (MarketWatch) — Some of Wall Street’s most vocal investors are betting against housing, saying the recovery has fizzled out.

 

http://www.marketwatch.com/story/big-investors-are-betting-against-housi...

Thu, 05/22/2014 - 13:52 | 4785454 813kml
813kml's picture

Are you saying that the markets are in some sort of trouble?

Thu, 05/22/2014 - 15:00 | 4785768 dontgoforit
dontgoforit's picture

Was Pogo a green alligator?

Thu, 05/22/2014 - 20:35 | 4787008 Crusader Rabbit
Crusader Rabbit's picture

No Pogo was a gray Possum.

Albert the cigar chomping Alligator was green -

 

https://www.youtube.com/watch?v=FTe8jXb-7f8

Thu, 05/22/2014 - 13:52 | 4785456 pound the vix
pound the vix's picture

These shorts must be in weak hands as every little pop over technical levels results in big up days.  I see a lot of down day intraday reversals but hardly ever an upday reversal

Thu, 05/22/2014 - 14:02 | 4785495 Redneck Hippy
Redneck Hippy's picture

I thought it was too much margin debt that was going to make the market crash?  Which is it,  Tyler, are people too long or too short?

Thu, 05/22/2014 - 15:00 | 4785770 dontgoforit
dontgoforit's picture

Meet my little friend, "Shorty Long."

Thu, 05/22/2014 - 13:53 | 4785469 _ConanTheLibert...
_ConanTheLibertarian_'s picture

My gf stole my shorts.

Thu, 05/22/2014 - 13:56 | 4785474 what's that smell
what's that smell's picture

isn't goldman sachs doing god's work?

11th commandment: thou shalt smite thy muppet.

and on the seventh day blankfein bought the fucking dip. amen.

Thu, 05/22/2014 - 15:01 | 4785776 dontgoforit
dontgoforit's picture

The last three words of the GS employee manual:  "Get the money!"

Thu, 05/22/2014 - 13:56 | 4785476 Theta_Burn
Theta_Burn's picture

Only to be crushed again..

Max Pain, still alive and well, especially on the short side...

Thu, 05/22/2014 - 13:57 | 4785478 Eyeroller
Eyeroller's picture

But in 2007 there wasn't the pump protection injection.

Stocks are due for a yearly low cycle in early June.

There will still be a drop, but only to mid-April levels, thanks to the Ponzi Munchkin, prolonging the inevitable.

Thu, 05/22/2014 - 14:03 | 4785486 Hindenburg...Oh Man
Hindenburg...Oh Man's picture

You could save time and energy by just pulling money out of the ATM and burning it. 

 

That said, these low-volume ramp days are kind of strange. The NASDAQ up .75 percent on low volume pumps. You get the feeling a lot of people are short, not buying, just waiting for this fucker to crash. 

Thu, 05/22/2014 - 15:03 | 4785791 dontgoforit
dontgoforit's picture

Power to the people.  Waiting in hopes that the NWO will allow them a stronger voice?  It won't.

Thu, 05/22/2014 - 14:00 | 4785491 qazwsx
qazwsx's picture

they banned short selling of banks in 2008, for a month or so... im sure they'll do it again if it comes down to it.

Thu, 05/22/2014 - 14:03 | 4785497 free_as_in_beer
free_as_in_beer's picture

The first chart shows this can go on for years in a bull market.

The aggreagate $$ is meaningless becasue the % shows how much room is left to catch up.

 

BTATFH.

Thu, 05/22/2014 - 14:03 | 4785499 Obama_4_Dictator
Obama_4_Dictator's picture

 http://www.pentagonchannel.mil/Video.aspx?videoid=338557&videotag=&videopage=1&ccenabled=false

 

Chucky Hagel saying we are entering a new world order....

Thu, 05/22/2014 - 14:05 | 4785506 disabledvet
disabledvet's picture

Agree with Doc as usual. No way the market can crash when you have the PTB all in agreement that the dollar is to be destroyed and debt is to be ramped up to beyond imagination.

Sorry but Detroit is our "model City" folks. The Chickens have indeed Come Home to Roost (tm. GM?)

Thu, 05/22/2014 - 15:05 | 4785804 dontgoforit
dontgoforit's picture

They will only crash it when the table is set for the feast.  One more green bean to grow before the stew is ready.

Thu, 05/22/2014 - 14:06 | 4785516 NDXTrader
NDXTrader's picture

I would love to see a chart not of the Dow 30, S&P 500, or the Russell 2000, but rather the Mom and Pop 1,000,000 - that was the market to short

Thu, 05/22/2014 - 14:09 | 4785525 Baby Eating Dingo22
Thu, 05/22/2014 - 14:25 | 4785588 nakki
nakki's picture

You figure that at least one of those grads would have come with the right answers. Q : Who or what is the FED? A : The worlds largest counterfeiters.

Thu, 05/22/2014 - 14:15 | 4785552 vote_libertaria...
vote_libertarian_party's picture

And what is GS's angle on pointing this out???

Thu, 05/22/2014 - 14:17 | 4785559 vote_libertaria...
vote_libertarian_party's picture

Maybe in 2008 the WS banks could tip over the market and cash in at the lows.

 

With the Fed a player on the opposite side of the trade they need to recruit more privates to help create the tipping point.

Thu, 05/22/2014 - 14:19 | 4785570 mogul rider
mogul rider's picture

 

 

 

 

So lemme git dis str8

 

the stupids are long

the smarts are short

CNBS is pumping

GS, JPM, and every other dirtbag outfit is dumping

And I'm in cash

 

Wow - me smart

Thu, 05/22/2014 - 14:55 | 4785741 hootowl
hootowl's picture

.............Except your cash is disintegrating by the minute.

Thu, 05/22/2014 - 14:23 | 4785584 El Vaquero
El Vaquero's picture

We could wake up one morning, and see that the market has crashed.  We could also see the S&P500 shoot up to 200,000 in nominal terms, ala Zimbabwe.  But I think that it should be recognized that the market is only one component of the general economy, and I see a couple of dynamics with the general economy that I think people should think about.

 

Let's pretend that there is an exotic food that, no matter how carefully prepared it is, every time you eat it, you have a 1% chance of getting sick.  It's supposed to be really good, good enough in fact, that people are willing to risk it.  I mean, what's 1%, right?  So, you find a restaurant right around the corner that serves this exotic food, and you go try it.  You don't get sick, and you're hooked.  Hereinafter, you decide that, like clockwork, you're going to show up and eat it for lunch on Tuesdays and Thursdays, except for the couple of weeks that you are out of town.  So, you can ask two different questions:

 

On any given Tuesday or Thursday, what are the chances that you are going to get sick from eating this exotic dish?  The answer to that is simple.  1%.  Your risk on any given day is minimal.

 

What are the chances that you will get sick from eating this exotic dish over the next year?  Well, now you're asking about how the risk has compounded, and the answer is 63%.  But maybe you can afford to get sick every once in a while and you think the risk is worth it.  Or maybe it will put you in the hospital and nearly kill you.  Or maybe it will kill you.

 

The point being, seemingly minimal risk can compound over time in such a way that seemingly small risk will eventually come back to bite you if you continually do something over and over again.

 

The next dynamic that I see is that, while I cannot tell you what the risk is for each individual action of the Fed, of Congress, etc... I will guarantee that for each action or "event," the probability that something will go south is different.  There is real-world complexity to the problem that makes things a lot harder to predict than in the simplistic example above.  The actions taken may be more or less wise than others, external forces can come into play, etc...  There is also the continuing additions to the distortions that we are seeing, meaning that, on average, the risks associated with each "event" are increasing.  With each level that is added to the house of cards, the more unstable it becomes and the more likely trying to add another level will bring it down.  Just look at the moves that China and Russia are making against the USD.  That is increasing the risks.

 

Again, I don't know what the probabilities that any given action will be a fatal error, the world is too complex for that.  But, putting those two dynamics together tells you why I do not expect any given event to cause the house of cards to collapse, but I do expect that there will be an event, or a series of events that cause it to come down.  It's a finite world and we expect exponential growth.  It is mathematically certain that, so long as we stay on this planet, nature will eventually trump that growth.  It's just a matter of how far along the curve we can push the scam.

Thu, 05/22/2014 - 14:38 | 4785644 Seeing Red
Seeing Red's picture

My right hand is a lot stronger than my left hand.  You see, every day, I wind a broken clock with it.  It's right twice a day.

Thu, 05/22/2014 - 14:41 | 4785662 Lastline
Lastline's picture

All it takes is one last short squeeze to push it higher by running the stops and faking out the longs. And then, the rug will be pulled out with panic buyers holding their bags of diseased assets wondering how they were born yesterday.

Technically, market tops are best formed on explosive parabolic rallies that seem too easy. Watching this will epic.

Thu, 05/22/2014 - 14:58 | 4785759 Kreditanstalt
Kreditanstalt's picture

What stops?  My stuff all crashed long ago so fast that I didn't have TIME to add any stops...

Thu, 05/22/2014 - 16:55 | 4786328 p00k1e
p00k1e's picture

You make a good point.  And if markets crash a little faster than last time, all the self-directed IRAs and non-union 401K plans will be sucked in to the vortex and evaporate instantly. 

How many boomers are thinking, “I’ll cash in my chips right before retirement and pay off all the bills – mortgage, cars, HELOC, etc…. , I’ll be in good shape.”  

But we know this can’t happen in a debt-based economy.  

 

 

Thu, 05/22/2014 - 14:44 | 4785681 erlebach
erlebach's picture

The amount of shorts was much higher in 2004. No crash. The dow went up 33% before the crash. S&P went up 50% and russell2000 went up 40%. Your logic is flawed Tyler. 

Thu, 05/22/2014 - 14:44 | 4785684 walküre
walküre's picture

Spring is the time when the bears are coming out of hibernation.

Thu, 05/22/2014 - 14:52 | 4785730 buzzsaw99
buzzsaw99's picture

Thank you, sir! May I have another? [/Chip Diller]

Thu, 05/22/2014 - 14:57 | 4785754 Kreditanstalt
Kreditanstalt's picture

Let me get this straight..."the market" is ramping on DOLLAR STORES and BEST BUY????

RETAIL??????   Hahahahahaha....

Thu, 05/22/2014 - 15:06 | 4785810 TheRideNeverEnds
TheRideNeverEnds's picture

you are overlooking the fact that this time is different. 

Thu, 05/22/2014 - 15:32 | 4785966 ThisIsBob
ThisIsBob's picture

It might be if one believes that 2014 computer code will not trade the same  as people did way back in the day.

Thu, 05/22/2014 - 15:14 | 4785858 JRobby
JRobby's picture

May 22, 2014 when traders want to get an early jump on the 3 day drinking/doping/whoring fest sounds unlikely.

Soon though. Assume the position for a fist-up-ass selloff.

 

Thu, 05/22/2014 - 15:34 | 4785984 hugovanderbubble
hugovanderbubble's picture

Estimated Goldman,

 

You must use a Equal Weighted Index to make those figures comparable.

 

The index member weights are not the same....neither the CF´s

Thu, 05/22/2014 - 15:34 | 4785987 Jano
Jano's picture

Wall Street controls this.

No charts and no value of indices are relevant.

If WS wants then they will crash it tomorrow.

If thwy do not want, then they will crash it /I do not care/ in october. 

Thu, 05/22/2014 - 15:42 | 4786029 The worst trader
The worst trader's picture

The biggest short position is the vix,when will the short squeeze begin?

Thu, 05/22/2014 - 16:25 | 4786211 heavy.metal
heavy.metal's picture

Strong hand short positions? If you're short, you're leveraged. If you're leveraged, you're not a strong hand.

You can't out-Fed the Fed. Stop playing their game. Leave the casino and dump their worthless chips. Exchange them for real money while you still can.

 

Thu, 05/22/2014 - 16:26 | 4786213 NoWayJose
NoWayJose's picture

Not believable that there are this many shorts on a market still getting juiced by the Fed and still within earshot of all time highs.  Shorts have been nothing more than roadkill for the bulls for the last 2 years.  And it isn't likely that you have this many shorts at the same time that the VIX is crashing to lows on minimal volume.

Thu, 05/22/2014 - 17:03 | 4786352 Hongcha
Hongcha's picture

Beware, brethren, of coloring your judgment with personal odium for the PTB running this crooked tent show ... as I have so many times in the past 5 years.  I have oft shorted from sheer exasperation and needless to say got stopped out over & again.

There are better bets.  

That said, the 4-D board pieces are moving rather quickly lately, are they not ;)

Fri, 05/23/2014 - 04:46 | 4787674 thisisjustarand...
thisisjustarandomusernameicreatedforzerohedge's picture

why measure short interest in volume though...?

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