Short Interest Plunges Just In Time To Eliminate Natural "Covering" Bid, YTD Equity Fund Outflows Hit $112 Billion

Tyler Durden's picture

The just released short interest update from the NYSE tells us two things: as expected, the bulk of the rally from the early October lows was a function of short covering, as nearly 2 billion shares short were covered in the past month, a multi-year record, bringing short interest from equal to the March 2009 market lows at over 16 billion shares to just over 14 billion by the end of October, just as the S&P added almost 200 points. Indictively, it tells us that in this low liquidity and volume enrivonment, the covering (forced or otherwise) of each billion shares of stock on the NYSE is roughly equivalent to 100 S&P points. More importantly, now that the market has started its tumble, there are no weak hands left to cover and provide the natural bid buffer when the market goes bidless. Those who are short now, are short for good, and will likely cover far, far lower. Which leaves the only open question of what the EURUSD net shorts will do. However, with the EUR at one month lows, we are fiarly confident that any potential covering there is over, and only more shorts are being added.

And in other unpleasant news, the equity exodus continues unabated as equity mutual funds are running on "dry powder" fumes: in the week ended November 2, another $3.4 billion in cash was redeemed from domestic equity funds, bringing the total for 2011 to ($112) billion and the last two year total to $210 billion rotated out of stocks and into fixed income and/or precious metals. Excluding an irrelevant blip in August, this is the 29th consecutive weekly outflow from stock funds. Ironically, in continuing to do nothing to restore investor confidence, the SEC is doing the best job possible to actually fix this market - it is after all precipitating its terminal collapse and much needed reset.

Soon there will be nobody trading at all, and 1 ES block will move the S&P by 10% or more, confirming that during her tenure, Mary Schapiro singlehandedly destroyed what is left of the US equity market (but at least got a few cushy general counsel jobs for her employees at several HFT firms in Chicago and New York).

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Irish66's picture

not me, they can't have my cute shorts

achmachat's picture

but in the movies, whenever you see stocks being traded, you see the floor filled with screaming traders...

showing a server rack running HFTs would look sooooo boring!

YesWeKahn's picture

Holly shit, robo's short covering bull market is about to end.

jcaz's picture

Good call on Shapiro-  her shit hasn't made sense from Day One.

Careless Whisper's picture

We are approaching the doom scenario.    Nigel Farage

Iceland is growing again.  Nigel Farage


Interviewed today:


homersimpson's picture

This is one FAZ owner that did not succumb to Wall Street's HFT and survived.

IT'S DAYS LIKE THESE THAT REMIND ME WHY I TAKE THE FAZ BEATINGS FROM TIME TO TIME. I will always try to short economic policy that is borne out of desperation and disguise.

The returns of going short are MUCH greater than going long - even though it might feel like death by a 1000 cuts being a FAZ owner.


To all the other world gov'ts that refuse to live within their means: I GIVE YOU MY OTHER MIDDLE FINGER - AND THE REST OF MY FAZ SHARES.

FAZ 2012.


trampstamp's picture

I go long TZA, BITCHEZ!!!

wow first time i use that manly statement LOL!

ChitownTrader's picture

Let me state the obvious to any skeptics that are long:


This is the bottom line, there is absolutely nothing to discuss. Merkel and Sarkozy can come out tomorrow and say they have a plan to raise $100 Trillion Euros, well thats great, let me see who will give then one yen. 

To all of you short in leveraged derivatives, just suck up your temporary red portfolio because clearly you purchased too quickly and did not hedge at all. This realization will become very clear within the upcoming weeks.

I put my money where my mouth is already have my beautiful red farrari picked out =)

Mutatto's picture

"Those who are short now, are short for good, and will likely cover far, far lower."


I just hope the FAZ can recover.  The ETF melt effect has NOT been fun...counting on a little panic volitility to add some juice.


homersimpson's picture

FAZ will recover and the days of reverse splits are LONG gone. The days where Banana Ben can just print money and the stock market woes disappear is long gone. We're more likely to hit 6500 than 14000 the way things are going. I will admit though - if QE3 is officially announced, I'll drop FAZ like Oprah drops diets.

pmcgoohan's picture

The short interest doesnt look that low to me. I really wanted it to.

junkyardjack's picture

Nice, maybe this thing can breathe a little bit

bnbdnb's picture

Maybe this is the second leg of the true downturn, a al 2008-2009.

chump666's picture

ZH, on wires re: EUR/USD traders were itching to short as of two days ago.  THey were just waiting for the magic 7% to appear.  It will go biddless as will stocks, till we break the Aug/sept/oct lows.  All eyes on the ECB.

Dr. Engali's picture

Hopefully not too many new shorts jumped ion this move down or we will get another big squeeze.

topcallingtroll's picture

I dont feel so stupid being mostly cash and a little gold now.

May try to play a bounce tomorrow.

TradingJoe's picture

ECB/FEDsters WILL PRINT, we will not see the 08/09 lows, not yet, unfortunately:(((

What we'll see instead is a 1205ish to 1175ish, market can turn and run to 1320ish before the really big kahuna shows up just in time for FEDSTERs election "support":))) that's the 700ish we all wait for, then we can back up the truck one more last time to go along with WS dervishes!!

It's almost holidays time and the year end bonuses Must be Scured!!!
Exercise caution out there it ain't over yet!!!

hackettlad's picture

Agreed not the 2008/9 lows yet but maybe a re-test of October first before another ramp up, then the final collapse.

Vampyroteuthis infernalis's picture

The FED and ECB will print and it won't matter. Those overleveraged traders are being sucked into hell. S&P 900 by 2012.

rgilliam37's picture

Let's bite the bullet now. Extend and pretend saps the country and robs from current and future generations. People like Dimon, immelt, corozine need to tarred and feathered (publicly humiliated). I pay to see that!!!!!

tkinfo's picture

And let me tell you, keeping the short positions in the money center banks and brokers was no fun this last month for the hedge fund. Thankfully, gold started to ourperform the last two weeks. But phew, it was a lot of pain even though we started many of the positions with prices 60% higher then they are now.

TomInTheWorld's picture

Um, hello? 2 billion in short coverings is not enough to push the market up that much


TomInTheWorld's picture

Average Volume per day in the SPX is like 4-5 Billion.   COME ON GUYS! 

Grand Supercycle's picture

DOW/SP500/NASDAQ charts reveals very overextended price action and another Wile E Coyote scenario.

As mentioned numerous times, the bullish US Dollar weekly chart continues to exert it’s influence and according to my analysis this will continue.

mbtshoe's picture

FDIC loan loss sharing details are a total taxpayer ripoff to big money types and billionaires like Soros, Dell, GS execs.   Look up OneWest Bank started by those guys.   FDIC sold them a portfolio at up to 50% discount and the FDIC backs up to 90% of losses, not based on what OneWest paid, but the ORIGINAL amount of loans.  OneWest makes more money not working out any loans and letting them foreclose and cashing in from the FDIC.









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sheep92's picture

not to rain on the crashfest, but if the number of short shares declined by about 10% and the market went up by about 10% the total dollars of shorts outstanding hasnt really changed much.......