Does Not Compute: The Market Is The "Most Overbought Since 2009" Yet "Most Short Since 2008"

Tyler Durden's picture

Yesterday we first reported something unexpected: when looking at the constituents of the record short squeeze that started two months ago, and still continues, traders had largely maintained kept single-name shorts, and instead covered short ETF exposure.


This followed a previous observation showing that when it comes to NYSE short interest, it is near the record highs (in absolute terms, if not as a % of market cap) reached during the financial crisis.


Furthermore, as we have been reporting for the past 2 months, the "smart money" clients of BofA have been consistently selling this rally, and as of this last week, have sold shares for 10 consecutive weeks,with the selling actually accelerating, and in the last week, during which the S&P 500 was up 1.8%, BofA clients sold a total of $4 billion, the largest since September, and the fifth-largest in BofA history.


Bloomberg summarized all of this overnight in a note discussing the well-known short overhang, amounting to $1 trillion in total short interest.

Amid its biggest about-face in nine decades, a funny thing has happened in the U.S. stock market, where rather than loosen their grip bears have grown ever-more impassioned. They’ve sent short interest to an eight-year high and above $1 trillion, by one analyst’s math. Position reports from the Commodity Futures Trading Commission show mutual fund managers are more skeptical now than any time since at least 2010.


“There’s an enormous demand coming,” said Thomas J. Lee, managing partner at Fundstrat Global Advisors LLC., in an interview with Bloomberg TV . “Retail investors are about to put a lot of money into the equity markets because they’re trend followers and the S&P has had two positive quarters in a row. Funds can’t keep a trillion short position, larger than March ’09.”


It started in August, when bearish investors sent bets against U.S. stocks above 4 percent of available shares for the first time in six years. They haven’t backed off since. By the end of February, the ratio climbed to 4.4 percent, the highest since 2008, according to exchange data compiled by Bloomberg. As of March 15, that level was 4.3 percent, equivalent to a short position just under $1 trillion.

So, supposedly the market is the most short since 2008.

Which is odd because according to a report released this morning by UBS, while there are allegedly record shorts, the market is somehow, at the very same time, the most overbought since 2009. Here are technicians Michael Riesner and Marc Muller:

With the SPX hitting a new reaction high on Wednesday we were obviously too early in expecting the SPX to top out last week. However, our base case has not changed. The SPX continues to trade in the time window of our late March/early April top projection. The market is still in its most overbought position since 2009 and together with the internal momentum starting to deteriorate we see the SPX in a final extension instead of starting a new breakout, and in this context we are sticking to our recent comment and would not chase the market on current levels.



So, at the very same time, this market is the "most overbought since 2009" and "most shorted since 2008"...

No Wonder Morgan Stanley chief equity strategist Adam Parker lost it this week, and is seeing nothing but cockroaches.


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Grandad Grumps's picture

Maybe you should look at the REAL definitions of Over-bought and shorted if you want to make sense of things.

Cognitive Dissonance's picture

I think it's a clear case of Schrodinger's Market, both alive and dead at the same time. Stayed turned tomorrow when we open up the market and find out what's really going on.

Four chan's picture

after the banks sold all the bunk mbs to the fed and us taxpayer, they went long as fuck, most ever that's what the market is..and all of retail is short knowing there is no bail out this next time.

OrangeJews's picture
OrangeJews (not verified) Four chan Apr 6, 2016 9:39 PM

TPTB just take out the shorts when they need to to keep up the charade.

Casanova's picture
Casanova (not verified) Four chan Apr 6, 2016 9:41 PM

When it all comes CRASHING DOWN, call it KARMA for our role in the Greatest INJUSTICE of the 20th Century =>

JamesBond's picture

Two sides to every bet.  Someone gets a new boat, someone gets a new spouse.  



Al Huxley's picture

So you're saying everybody wins?

trulz4lulz's picture

Excellence in mediocrity. First to break even, wins?

wanderer9641's picture

No = Only the one with the boat is the winner - the other gets present divorce, alimony, and child support + A futures divorce/alimony pair.  I want the boat.

WOAR's picture

But if you get the boat, it will sink your precious metals!

Think of the poor doubloons!

Stox's picture

And those definitions would be?

slaughterer's picture

This contradictory situation (overbought and short) paves the way for a long period within a fairly narrow trading range.  

ShortCommonSense's picture

Not sure why you got the downvotes, you are correct.  Over bought and heavily shorted don't contradict each other, except seemingly semantically if you don't understand markets well enough. 

Boris Badenov's picture

And the single stock vs. ETF shows that traders are figuring out how an index is cap-based is rigged against decliners unless they are the biggest weights. They could be long SPY as a hedge.

Lets Buy The Dip's picture

These guys is quite accurate with his market calls. Especially this year =>

I think people are getting ready for EARNINGS, which starts the 11th of APRIL, and that could bring a few surprises. 

Obviously we have gone up harder than ever. We have not witnessed a rally this big since 1933, but as you know what

goes up, will probably most likely come down. :-D

Osmium's picture

I you want to find cockroaches, look no farther than the FED.  Where do you think the money for all the share repurchases is coming from?

LostWages's picture

Very simple explanation.  Mr. Yellen is overbought while everyone else is short.

TradingIsLifeBrah's picture
TradingIsLifeBrah (not verified) LostWages Apr 6, 2016 8:34 PM

Don't fight the Fed

fed_depression's picture

Makes sense. BOJ's hedge is USD and the market. ECB and all the others have probably done the same thing to tie everything together.

silverer's picture

This is only proof that unicorns exist. Now we go back to the more controversial UFO's.

GoldenGoosed's picture

This was on drudge from the daily mirror today
Or the coordinates are:
31°26'43.0"N 109°04'30.0"W

Omega_Man's picture

who is shorting the FED?

Theonewhoknows's picture
Theonewhoknows (not verified) Apr 6, 2016 8:28 PM

Hey the Bubbleomics are in full swing - soon the war on cash will be catching up with us so they will have thier centrally planned system to stroke their egos with never ending bull market, with bubble made out of bubbles...

Bunga Bunga's picture

Don't worry, the Panama Papers will solve the problem. Just hide your money in US of A.

Oldwood's picture

Constantly analyzing an economic market that is fake as the constellation map of Star Trek. Its fiction folks.
Like the game Monopoly, we can play endlessly and acquire great wealth, but it only the maker of the game that makes REAL profits.

TradingIsLifeBrah's picture
TradingIsLifeBrah (not verified) Apr 6, 2016 8:33 PM

What I'm seeing is that back in January 2016 markets were more oversold than back in 2009.  Then I look at the market's performance since that massive oversold scenario back in 2009.  Based on this analysis, I'm going all-in tomorrow on the market.  If history repeats itself I will soon be retired. :)))))

The Real Tony's picture

The last time the market was oversold was the fall of 1982. The market indexes have consistently been overbought every month since the start of year 1994.

Stox's picture

Makes sense when you think about it one way.  It seems the key way to make money in this market is to find something to squeeze, and squeeze it.  A MOMO stock ramping up ... pound it down and squeeze MOMO longs.  A dog being shorted down hard ... squeeze the shorts.


Today's action was the best case in point.  Biotech went nuts, which makes sense when you consider it is the most hated / shorted sector.

Stox's picture

It may be about time for a really wicked ramp / short squeeze in the biggest dog banks no long would touch.

JailBanksters's picture

Still can't Taper a Ponzi Scheme eh ?

Oldwood's picture

Everybody loves a good Ponzi scheme...a good one is getting in early and out just before it all goes to shit.

We only get all moralistic about it when our timing sucks. It is human nature we struggle against.

Falconsixone's picture

Is there a market?

I think they just take your money, run a personal progam that takes it from you over time.

Maybe they think they're going to get paid when it falls to reality?

Then they can figure out what reality really is.


bad craziness's picture

So most overbought since 2009 and shorts peaking just like August 2008 right before the September collapse.  Everything is in place and Thomas Lee is a wet behind the ears junior trundled in for the last hurrah muppet trap.

CHoward's picture

What's the problem? 

Albertarocks's picture

Apparently Bloomberg doesn't understand that smart traders pile shorts on when they think the market is about to tank.  Why is Bloomberg surprised that shorts are at a record high at a time when the market is at the most overbought level in history?  Is there some sort of mystery about that?  That statistic is perfectly logical.  Seriously, Bloomberg should go into the welding business or something because they sure don't seem to understand market psychology.

Automatic Choke's picture

god no, think of all the bridge collapses if they did...

trulz4lulz's picture

To answer your first question. Because they have degrees in marketing and advertisement. Not economics.

Pareto's picture

Said Jayred to Mark Baum and his associates when they were required to post more collateral when mortgage defaults were sky rocketing so too were the price of MBS, thus  crushing the $50M in  swaps they bought much to Baum's disdain - "what the fucking is going on?"..........

"Look at yourselves.  You pass yourselves off as cynical people, but, you still have some faith in the system - don't you?"

It's a paradox.  People know the system is rigged and that it's broken and yet still believe.....still use charts and other analyses as if the system was wound by price discovery free and unfettered.

How many times do people need to get fucked before they realize that their justified loss of faith in the system will not change, just because they decide to check that doubt  and instead, participate in it?

It's fucking insane.  We know the system of election is totally undemocratic but have no problem contending why, for example, a third party candidate should be elected.

That's what keeps the system going.  We know it's fucked but we are too afraid to abandon it because it's all we really know.  A dependency of immiseration.

And not only do we never win, but, we never learn.

rejected's picture

Because no one has put forth a viable alternative that doesn't involve pain so Americans are going to keep what they have until it fails. They're hoping this is something their children will have to deal with and unfortunately most seem content with that.

Theos's picture

Luckily we have all those investors in long vol to rake in the bank....

Mediocritas's picture

It's all the bears getting squeezed, stopped out (contributing to actively overbought), then passively re-entering at higher levels having not learned their lessons.

You don't short in a ZIRP/NIRP environment with HFT predators all over the place unless you're a total masochist.

Nero_Hedge's picture

This shit is all irrelevant for most Americans- we do not have ANY money tied up in the stock market...I guess it must matter to enough people that they're able to continue living in the American-Dreamland, but I feel like most of us are here, in a depression, and just waiting on these fuckers to catch up with us

yogibear's picture

And it can get crazy ovebought with the Fed's pumping.

Anyone waiting for it to fail has a long wait.

Small pullbacks now and large moves to the upside.

Any significant pullback has the fed governors coming out to talk it back up.