Plunge In NYSE Short Interest Explains Recent Market Rally

Tyler Durden's picture

UPDATE: As an observation, QQQ Short-Interest is at 11 year lows (January 2001)

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.

As further evidence of what seems like a huge short-covering surge into year-end, QQQ (the NASDAQ ETF) saw short-interest drop over 43% into year-end to levels not seen since January 2001 (11 years!).

Chart: Bloomberg

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BaBaBouy's picture

President Mutt, err, Mitt .?.

AND thats THE BEST We Got?


Yep, that sounds REAL Good...

Adding now to my Mutt futures shorts.

redpill's picture

This is a bet that Willard Mittarand Benjamin Shalom Romney III won't stop the Fed from performing more QEasing.

Here's to hoping the Ron Paul black swan takes flight.


Mr Lennon Hendrix's picture

The dollar is getting its ass kicked.  I wonder if the Fed needs to announce QE X or if they could just go on with it.

slaughterer's picture

No short interest means there is nobody to buy (cover) when this fucker goes down.  

HarryM's picture

Goes down ? - seems there is no amount of bad news that can make it go down.

It goes up on rumors and fudged stats, but won't drop on factual bad data.


youngman's picture

Well they sure cleaned out their Gold and Silver shorts........

Milton William Cooper's picture

Maybe Ronnie Paulino will go campaign for the Latino vote

redpill's picture

Rhon Paulopolis was seen campaigning in Greektown

Cdad's picture

And short they will.  All machine driven market activity aside. and IF you believe the VIX measures the price of downside protection, the Street is currently unprotected.  Initiate Selling begets Selling program.  And as brother Dog always says, "Let's light this [decoupled] crap candle!"


ACP's picture

At least on that graph, the short interest dropped faster than any other period. Lot of room to move up, especially with the ridiculous bullishness.

Everybodys All American's picture

Which means if any market slide gets going there will be no short covering to cushion the fall.

I did it by Occident's picture

Hey Tyler, not to be off topic but it may be time to add 2012 to your copyright footer. 

"Copyright ©2009, 2010, 2011 Zero Hedge, LLC. All Rights Reserved."

_ConanTheLibertarian_'s picture

Just use this and be done with it:

Copyright ©4.54 × 109 ± 1% Zero Hedge, LLC. All Rights Reserved.

Mr Lennon Hendrix's picture

I bet the PWG shorts the market as much as anyone.

LawsofPhysics's picture

Is everybody in? Let the real fleecing begin in 3...2...1...

Cdad's picture

Yep...rapacious sellers today.  I don't think they will let up.  And on the buy side you poor mutual fund guys who know nothing but redemptions.  

As I noted yesterday, MCD gave off a brief however very clear signal yesterday in the morning.  This market cannot handle sell pressure, at all.

The S&P has no business being anywhere near 1300.

LawsofPhysics's picture

careful, I still don't know where the fleecing will occur.  For example, the dollar has not been raped in a while (this explaining gold's move?)

Mr Lennon Hendrix's picture

The dollar will be the brunt of Bernanke's wrath soon enough, but it should hand onto DXY 81.5 until QE X.  81.5 is the longterm holding number.

Mr Lennon Hendrix's picture

US banks?  Euro banks?  FX?  Do you have a pick?

francis_sawyer's picture

I really don't have a pick... But I'll conjecture (out loud)...

1. First of all, one probably has to "buy into" the meme that the Soc Gen trader incident was the FIRST BIG THING which started the 2008 ball rolling (followed by bear Stearns in March & culminating with Lehman)... Remember that after Soc Gen, Bernank INSTANTLY had cover to whack interest rates...

2. Quite possibly, MF Global was already the Soc gen moment (in a different way)...

3. So the way I see it... there is desperate need for a BLAME in this moment... War with Iran isn't cutting it (at least not YET ~ because all the pieces don't seem to be in place)... In politics, it seems 'business as usual' (because the MSM seems to already have the sheep fleeced into an Obama vs. Romney showdown... Bernanke needs to get on with QE3 (because the 'synthetic QE3 of Euro SWAPS isn't really going to stay tethered that long...

4. So my guess is that what's needed is a good ol TRADING SCANDAL... A way to temporarily RESET markets in a way that they'll fall within some some kind of technically viable pattern across the board to buy time until the 2012 elections are completed...

5. IMO ~ the MOST RIPE (unexpected) thing to happen would be for the EURO TO RALLY... Therefore, the trading scandal would be something along the lines of a rogue trader caught SHORT the Euro...

6. As speculation might have it... Since BAC has rallied quite strongly off the 4 handle, there's where I'd look first...

7. 2008 was all about MONOPOLY... Bear Stearns, Countrywide, Lehman, Merrill, Wachovia, all went down... After the next round, there will even be less... It won't stop until there are only Goldman Sachs (which I expect to be taken private eventually), and JPM...

So that's my playbook...

Oddly enough... I can't say how Harry Wanger's "indices" will actually play out... Let's make it simple... Euro is tethered to Gold (so if the Euro rallies, so will gold & silver... I expect gold to make new highs, & silver, perhaps to rise, but not take out the $50 mark just yet)... Afterwards there will be another pullback (to 'shred' the gold & silver bugs yet again)... S&P will likely take a hit (as financials across the board will sell off)... This will get us to about May 2012, then I'll reconfigure...

My 2 oz... (Disclosure: I'm still stacking phyzz)...


Ghordius's picture

+1 - "a rogue trader caught SHORT the Euro..." too much good propaganda in the last weeks, someone is bound to believe

LawsofPhysics's picture

Of course, they will sell everything before the panic then have their regulators cancel all trades after, as well as make sure their politicians do not pursue any legal action against them.  Where have I heard this story before?

J 457's picture

Dollar won't go down until additional easing takes places. Anyone think Jan 25, or March?


Mr Lennon Hendrix's picture

And the Fed is talking 'bout QE X.  Selloff before gold hits $1700, QE X, War with Iran....

I bet gold sneaks up to $1700 next week, then the following week there is a selloff, it halts for a few days while everyone asks if we need QE X, Bernanke says, "Yup", and then boom.

That should be late February, and then days after Bernanke's helicopters start flying, Blackhawks engage Iran.

Non Passaran's picture

Well Cdad you were bearish last week (and so was I) and it didn't work out.

I'm again bearish (and short since yesterday), but I allow the possibility that this market will keep muddling through all the way to next QA. 

Cdad's picture

There cannot be a QE here, with the S&P where it is...and especially with oil where it is.  You can beg all you want for it, but the conditions do not exist for QE to be implemented.

Were it implemented now, the rise in the price of oil and gasoline would immediately absorb any effects of QE, and furthermore, the FED would be politically at risk.


The Axe's picture

The market is more broken then Rocky's nose..

junkyardjack's picture

So going all in on LULU is likely going to be a bad thing?...

UP Forester's picture

Not if you hedge it with BAC and NFLX....

jiggerjuice's picture

Corollary: time to short. So let's see, looking at this chart... August was actual selling, October lows were shorts on fire, followed by epic covering, then Thanksgiving was actual selling, followed by Santa covering.

So now that there are no more shorts (only 12 billion!), are we predicting actual selling then? Or more shorting?

rosiescenario's picture

........shorting = selling redemtions = selling


.......????? = buying

evolutionx's picture
Obama: Dollar just an Illusion

In a sensational interview  President Barack Obama provided some deep insight into the monetary system: "The dollar is just an illusion" - the US currency was actually not worth anything.

All the facts:

Mr Lennon Hendrix's picture

You are pulling my leg.  Obama doesn't understand monetary policy.  And even if he did he wouldn't say all that.  Where is the interview?

Tramp Stamper's picture

If that is true, there is no way in hell they will air that on 60 minutes.

Bear's picture

"I don't want to end up like Kennedy. I really want to make a change. We need to change the system. Yes, we can!" ... This is the 'New Change' that we can believe in ... If Bush had said this they would have called him an idiot. 

I cannot believe that Obama implied that the FED was behind Kennedy's assination, but he does have access to that little black book of Presidential Secrets I saw on 'National Treasure'

The trend is your friend's picture

it is amazing how hedge funds get suckered again and again

EasyForYouToSay's picture

maybe the smart money is covering because they were wrong...sanp to 1330 in the cards....


Irish66's picture

that reversal in BAC is quite interesting

dracos_ghost's picture

Why. Italy banned all short selling on their banks. All the euro hedgies will have to short US banks instead -- and then get raped on the short cover. Let's not forget the debt ceiling is going to be raised and all those 'poor' US banks are going to have a huge shrinkage in their outstanding receivables courtesy of Unkie Sammy.

Plus you had the massive short attack on BAC on 8/3 at around $9.50 with the goal to pound it below 5(Options chains where banded at that level). $5 bounced and you'll probably see some nervous shorts trying to snipe at thinly traded levels.

Basically, it's a monkey shit fight between the Bernank and the short hedgers.

SAT 800's picture

It's interesting to me; who bought it at $5.76 at two to one margin on a nice chart price formation; I find it it very interesting.

yogibear's picture

Time to take a gouge out of hedge funds. The programs follow them.

Golden Boy's picture

Just let Skynet take over already. I'm tired of this shit.

Village Smithy's picture

It seems that short interest has a little farther to fall yet. Maybe even to new lows assuming that the ass kicking we got this year being short (I loved those numerous overnight ramp ups) has made shorts a little shy to pull the trigger. And therefore the SPY a little further to climb?

Mr Lennon Hendrix's picture

Paul Joseph Watson is reporting three carriers parked by the straight now.

"Show of force intimidation method" is in overdrive.