Len Welter, Chief Technology Officer, at Data Explorers — which monitors short positions — is not convinced short positions had anything to do with driving the current equity sell-off.
According to him, analysis of institutional flows indicates that there were six times as many longs as shorts in the market throughout most of last year, as well as leading up to May.
As he stated in a note on Friday (our emphasis):
While our DX Long-Short Ratio is off from its year-end high, we have seen an increase of 2% from the low on 7 May, despite the turmoil this week. We have also noticed that since July, institutional funds have not sought the traditional safety of fixed income.
Data Explorers, meanwhile, added the following context:
Short selling does not seem to have played a major part in recent downturn.
- The DX Long-Short Ratio (Global) is down 11% from the 52 week high of 31 Dec 2009, but up 2% from the 52 week low of 7 May 2010.
- The DX Long-Short Ratio (Global Equities) is down 15% from the 52 week high of 5 Jan 2010 but still above the low of 21 May 2009.
- To put this in context, the S&P 500 is down 3.9% and the STOXX 600 is down 6.4% since the start of the 2010
And here are the charts:
Investors, it turns out, may also be sticking firm with equities — rather than turning to safe haven investments in fixed income markets.
For example, according to Data Explorers, the global fixed income/equity long ratio has maintained a bias towards equities since last July. As they noted:
A trend which started last July – this could signal that bonds are not considered a ‘safe haven’ from the turmoil in the equity market.
And here’s the chart:
We guess that almost poses the question if equities are really the new safe haven.
After all, it is a sovereign debt crisis — right?
Related links:
How the Wolf Pack is (already) playing the BaFin ban – FT Alphaville
Forget the shorts, issuance is slaughtered – FT Alphaville
German ban adds to eurozone worries – FT