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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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Thu, 01/12/2012 - 12:56 | 2058661 BaBaBouy
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.

Thu, 01/12/2012 - 13:13 | 2058747 redpill
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.

 

Thu, 01/12/2012 - 13:21 | 2058766 HedgeAccordingly
HedgeAccordingly's picture

Mid day rally upon us - http://hedge.ly/z3ndB2

Thu, 01/12/2012 - 14:03 | 2058922 Mr Lennon Hendrix
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.

Thu, 01/12/2012 - 13:40 | 2058825 johnu1978
johnu1978's picture

Wall Stret is nothing more than a Kasino!

 

-John
http://www.youtube.com/watch?v=gmqGGxrbHoM

Thu, 01/12/2012 - 13:13 | 2058748 Stax Edwards
Stax Edwards's picture

Overweight Nasdaq

Thu, 01/12/2012 - 13:15 | 2058753 slaughterer
slaughterer's picture

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

Thu, 01/12/2012 - 13:26 | 2058784 HarryM
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.

 

Thu, 01/12/2012 - 14:04 | 2058931 youngman
youngman's picture

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

Thu, 01/12/2012 - 13:40 | 2058827 Milton William ...
Milton William Cooper's picture

RONnie PAULino

Thu, 01/12/2012 - 13:49 | 2058861 Milton William ...
Milton William Cooper's picture

Maybe Ronnie Paulino will go campaign for the Latino vote

Thu, 01/12/2012 - 14:30 | 2059033 redpill
redpill's picture

Rhon Paulopolis was seen campaigning in Greektown

Thu, 01/12/2012 - 12:48 | 2058665 Cdad
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!"

 

Thu, 01/12/2012 - 13:00 | 2058709 ACP
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.

Thu, 01/12/2012 - 13:05 | 2058730 Everybodys All ...
Everybodys All American's picture

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

Thu, 01/12/2012 - 12:49 | 2058666 I did it by Occident
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."

Thu, 01/12/2012 - 15:07 | 2059192 _ConanTheLibert...
_ConanTheLibertarian_'s picture

Just use this and be done with it:

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

Thu, 01/12/2012 - 12:51 | 2058671 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

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

Thu, 01/12/2012 - 12:52 | 2058675 LawsofPhysics
LawsofPhysics's picture

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

Thu, 01/12/2012 - 12:56 | 2058691 Cdad
Cdad's picture

Yep...rapacious sellers today.  I don't think they will let up.  And on the buy side you have...cash 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.

Thu, 01/12/2012 - 13:00 | 2058713 LawsofPhysics
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?)

Thu, 01/12/2012 - 13:02 | 2058721 Mr Lennon Hendrix
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.

Thu, 01/12/2012 - 13:13 | 2058744 francis_sawyer
francis_sawyer's picture

I expect the Jérôme Kerviel moment to come within the next 2 weeks...

http://en.wikipedia.org/wiki/January_2008_Soci%C3%A9t%C3%A9_G%C3%A9n%C3%A9rale_trading_loss_incident

Whocoodanode?

 

Thu, 01/12/2012 - 13:16 | 2058756 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

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

Thu, 01/12/2012 - 13:40 | 2058826 francis_sawyer
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)...

 

Thu, 01/12/2012 - 13:49 | 2058862 Ghordius
Ghordius's picture

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

Thu, 01/12/2012 - 13:25 | 2058779 LawsofPhysics
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?

Thu, 01/12/2012 - 14:19 | 2058982 J 457
J 457's picture

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

 

Thu, 01/12/2012 - 13:01 | 2058716 Mr Lennon Hendrix
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.

Thu, 01/12/2012 - 13:30 | 2058796 Non Passaran
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. 

Thu, 01/12/2012 - 13:36 | 2058816 Cdad
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.

 

Thu, 01/12/2012 - 12:56 | 2058694 The Axe
The Axe's picture

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

Thu, 01/12/2012 - 12:58 | 2058699 junkyardjack
junkyardjack's picture

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

Thu, 01/12/2012 - 13:01 | 2058715 UP Forester
UP Forester's picture

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

Thu, 01/12/2012 - 12:59 | 2058701 jiggerjuice
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?

Thu, 01/12/2012 - 14:09 | 2058949 rosiescenario
rosiescenario's picture

........shorting = selling

 

.....fund redemtions = selling

 

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

Thu, 01/12/2012 - 12:59 | 2058704 evolutionx
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:

http://www.webcompact.net/index.php/news/4468-obama-dollar-just-an-illusion-

Thu, 01/12/2012 - 13:29 | 2058791 Mr Lennon Hendrix
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?

Thu, 01/12/2012 - 14:14 | 2058970 Tramp Stamper
Tramp Stamper's picture

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

Thu, 01/12/2012 - 17:39 | 2059876 Bear
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'

Thu, 01/12/2012 - 12:59 | 2058705 The trend is yo...
The trend is your friend's picture

it is amazing how hedge funds get suckered again and again

Thu, 01/12/2012 - 13:00 | 2058712 EasyForYouToSay
EasyForYouToSay's picture

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

 

Thu, 01/12/2012 - 13:01 | 2058718 Irish66
Irish66's picture

that reversal in BAC is quite interesting

Thu, 01/12/2012 - 13:29 | 2058789 dracos_ghost
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.

http://news.businessweek.com/article.asp?documentKey=1376-LXNM2G07SXKW01-7NFBQG8HJDHNDJ6BRPORRTBAKN

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.

Fri, 01/13/2012 - 01:52 | 2060778 SAT 800
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.

Thu, 01/12/2012 - 13:02 | 2058719 yogibear
yogibear's picture

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

Thu, 01/12/2012 - 13:03 | 2058722 Golden Boy
Golden Boy's picture

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

Thu, 01/12/2012 - 13:11 | 2058729 Village Smithy
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?

Thu, 01/12/2012 - 13:08 | 2058734 Mr Lennon Hendrix
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.

Thu, 01/12/2012 - 13:14 | 2058750 punxsutawney phil
punxsutawney phil's picture

QQQ and SPY short interest is not a clean measure of overall bearish sentiment in the market.  Billions of dollars of arb positions have long stock (spx vs spy, ndx vs qqq) vs short etf positions.  The overall inventory is determined by basis mispricing in the market (delta neutral, divs, cost of carry) than it is anything else.

 

Thu, 01/12/2012 - 13:21 | 2058765 Gringo Viejo
Gringo Viejo's picture

Probably old news to some but Jim Willie's article posted at the Silver Bear Cafe this morning gives Tyler and ZH some serious KUDOS.

Thu, 01/12/2012 - 13:21 | 2058769 firstdivision
firstdivision's picture

the 30Y outpacing the 10Y

Thu, 01/12/2012 - 13:36 | 2058813 JW n FL
JW n FL's picture

 

 

that is soooooo last year!

Thu, 01/12/2012 - 13:25 | 2058780 Dick Darlington
Dick Darlington's picture

OT: Rumor de jour was that 1 spanish bank alone took abt 4 billion from the spanish govt bond auctions. 1 bank.

Thu, 01/12/2012 - 13:30 | 2058797 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

FX Swap in use

Thu, 01/12/2012 - 13:29 | 2058794 T-roll
T-roll's picture

I'm thinking Friday after the market close would be a good time for the S&P to announce some European rating downgrades (remember they downgraded the US on a Friday after market close).  The markets will be closed on Monday so a Friday evening announcement would lessen the market carnage.  I think that'll be the straw that breaks this bull's back.

Thu, 01/12/2012 - 13:35 | 2058810 JW n FL
JW n FL's picture

 

 

http://www.youtube.com/watch?v=i77Q4stQ7aY&feature=uploademail

Uploaded by on Jan 12, 2012

http://www.cato.org/monetary/

The stability given by the Federal Reserve is "between crisis sustainability" according to Auburn University economics professor Roger Garrison. Garrison spoke at the Cato Institute's 29th Annual Monetary Conference held November 16, 2011.

Thu, 01/12/2012 - 13:45 | 2058815 Eally Ucked
Eally Ucked's picture

It's nice for Willie CB to mention ZH as independent and most thrustworthy source:

"Actually, the ZH crew merely took the ball and ran with it, as they do so adroitly and consistently. In my opinion, the Zero Hedge web journal is by far the most valuable and broad single source of relevant information in the global financial crisis, bar none"

Thu, 01/12/2012 - 13:38 | 2058822 Randall Cabot
Randall Cabot's picture

I like how US stocks shoot up with EUR/USD but are flat when EUR/USD goes down then shoots right back up with EUR/USD when it rises off the lows.

Thu, 01/12/2012 - 13:41 | 2058830 punxsutawney phil
punxsutawney phil's picture

Just graph the SPX priced in EUR....straight up with few shakeouts since August

Thu, 01/12/2012 - 13:41 | 2058831 dcb
dcb's picture

except the short interest is the people running the prop desks and the banks.

Thu, 01/12/2012 - 13:42 | 2058835 vegas
vegas's picture

In real news, EURUSD up over 1% today. Stolper not available for comment as Vampire Squid clients get a jump on tax loss strategies for 2012.

 

http://vegasxau.blogspot.com

Thu, 01/12/2012 - 13:42 | 2058836 Caviar Emptor
Caviar Emptor's picture

Stocks fighting back from deeply oversold levels on robust news, confidence, and the apparent absence of revolution, insurgency, mass suicide and martial law. 

Thu, 01/12/2012 - 14:13 | 2058866 Texas Ginslinger
Texas Ginslinger's picture

Yield on a 1 year Greek bond finally went past 400%

Is sitting at 403%

To infinity and beyond...!!!!!!!!!!!!

edit; baltic dry index dropped again today.

 

Thu, 01/12/2012 - 14:14 | 2058971 rosiescenario
rosiescenario's picture

No wonder there was massive short covering. Shorts make their decisions primarily based upon fundamental analysis and that does not work at all in a market purely driven by HFTs and risk on / risk off binary models.

Being short or being long this market is betting red or black.....

Thu, 01/12/2012 - 17:24 | 2059850 Bear
Bear's picture

I have found that buying on bad news (i.e BLS numbers, etc.) has worked pretty consistently and I'm sure selling on good news would work too ... but, alas there has been no good news

Thu, 01/12/2012 - 14:16 | 2058976 FoieGras
FoieGras's picture

I have a much better explanation: More buyers than sellers. All you need to know.

Fri, 01/13/2012 - 01:38 | 2060759 SAT 800
SAT 800's picture

No, no; in Zero Hedge world it  is always merely another squeeze on the shorts. There are no rallys in Zero Hedge World; only short squeezes; it's a kind of alternative universive where you can do anything except make a profit.

Thu, 01/12/2012 - 14:21 | 2058998 orangedrinkandchips
orangedrinkandchips's picture

Makes 100% sense....THERE IS NO VOLUME...none.

Much like a roller coaster- and you all know what im talking about- when you are going up on the first part...click, click, click....then you have that silence as you hit the top.....before the first plunge as the ride goes on....

 

 

Thu, 01/12/2012 - 17:21 | 2059835 Bear
Bear's picture

Are you sure the clicking isn't the cocking of 100 bear guns

Fri, 01/13/2012 - 01:44 | 2060770 SAT 800
SAT 800's picture

Only if they're preparing to shoot themselves in the foot; again. Which I don't mind.

Thu, 01/12/2012 - 14:57 | 2059144 Georgesblog
Georgesblog's picture

There have been a lot of articles over the last 40 years, generally talking about the stock market decoupling from the real economy. The summary of all that is that the purpose and motive for investing has changed. My personal favorite is the Bigger Fool Theory. Whatever the investment is, the theory says that there is always someone ready to buy something that you had doubts about buying, in the first place.  It used to be that the motive in investment was about building something real. No more, apparently. Today it's more about building numbers on a balance sheet.

http://georgesblogforum.wordpress.com/2011/11/02/the-daily-climb-2/

Thu, 01/12/2012 - 15:59 | 2059462 Artful Dodger
Artful Dodger's picture

"Daddy, when will SPY be able to go down 40 cents on the day and stay that way?"

Thu, 01/12/2012 - 16:56 | 2059753 Ham of Love
Ham of Love's picture

The 2011 high was in in May. Don't think we'll be waiting that long this year.

Thu, 01/12/2012 - 17:18 | 2059831 Bear
Bear's picture

HFT ramp has caused Bear-exhaustion. ES at 1282 at 10:30 today closes at 1292 ... like watching Ents in slow motion

Fri, 01/13/2012 - 01:54 | 2060781 SAT 800
SAT 800's picture

Short Interest explains recent market rally; my little sister explaining how jet planes fly.

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