A couple weeks ago, FT Alphaville asked who’s “buying” the rally in US equities. We also noted that volumes are low not only because its August, but also due to a trend that’s at least a few years old. Now we ask, are the shorts hanging on or is it more a question of piling in?
Andrew Wilkinson of Miller Tabak decided that with major indices hitting multi-year highs, it’s a good time to look into which sectors have the most short interest. Here’s what he found:
The technology sector was the most shorted in terms of number of shares, but consumer discretionary stocks were on top when it came to short interest as a percentage of free float. Within the latter sector, here were some of the most heavily shorted stocks:
This, however, isn’t part of some dramatic increase in shorting the sector:
Wilkinson’s wider analysis revealed companies here and there that were rising in amounts of short interest, such as Frontier Communications, but there weren’t any screamingly loud sector trends.
One thing did catch his eye, though, and this was what motivated the whole study in the first place:
Some weeks ago we sent out a chart to show that the latest spurt of the rally was proving too much for investors expecting a crash. The Goldman Sachs rolling short index of the largest short plays was advancing faster than the benchmark index. And with the S&P 500 index now testing its highest level in four years we thought it made sense to examine the short picture across several sectors as the bulls start rolling in clover.
The short index in question is described like so on Bloomberg (GSCBMSAL Index):
An equally weighted basket of the 50 highest short interest names in the Russell 3000. Names in the basket have a market cap greater than $1 billion. This basked is updated on a monthly basis.
So we downloaded the series and plotted it on an absolute basis:
And a relative basis:
As can be seen in the above, the outperformance by the short index didn’t last long and was small to the level of squinting. Still, interesting to see how previous rallies have peaks where the relative performance of the short basket exceeds that of the major indices, but this time around the rally hasn’t had the strength to drag the shorted index up with it.
We’re still trying to make sense of this. Thoughts?
Who’s “buying” this rally? - FT Alphaville