Submitted by Mark Hanna
Courtesy of MarketMontage. View original post here.
More signs for contrarians to take note of… of course sentiment measures are not precise in any way, but the short interest measure is something I’d definitely be aware of. This run up has been on vapor volume – something we have become used to in the past 3 years (in the past we celebrated moves higher with expansion of volume…. now we have a new era, where volume apparently no longer matters).
- January is shaping up to be slowest month for US stock exchanges since, well, December, which ranked as the quietest month for buying and selling US equities in four years.
Anyhow the thesis is much of the rally thus far has been short covering but not “real buying” as there is no volume… I’d argue that to a point because much of the move from early 2009 has been on “no real buying” on that count (lack of volume).
Anyhow the air is somewhat thin up here, but we have to be respectful that it can stay thin for a while. As stated in the piece, the last time short interest was so low, it still took a month for stocks to peak. Just not a place to make the same sort of parlays as when the market was far more oversold.
- The stock-market rally has driven short interest to a nine-month low and bearish sentiment close to a six-year low, a sign that few investors may be left to propel further gains, Strategas Research Partners said.
- Short interest, or total number of shares sold short, fell to 168.8 billion on the New York Stock Exchange and the Nasdaq Stock Market at the end of December. The proportion of respondents in the American Association of Individual Investors survey who expect the market to decline over the next six months reached 17.2 percent this month, down from 50 percent in August.
- “Real money is now needed to support the market rally,” Christopher Verrone, head of technical analysis at New York- based Strategas, wrote in a note today. “Investor complacency is growing,” he said. “The short-covering phase of this rally is likely exhausted.”
- Last time short interest was this low, in March, the S&P 500 peaked at 1,363.61 the following month. Short interest reached its 2011 high of 200.5 billion shares in September, the month before the benchmark index set its low for the year at 1,099.23.
- The bearish sentiment reading was the second lowest since November 2005, after the 16.4 percent in December 2010, according to data compiled by Bloomberg.
Disclosure Notice
Any securities mentioned on this page are not held by the author in his personal portfolio. Securities mentioned may or may not be held by the author in the mutual fund he manages, the Paladin Long Short Fund (PALFX). For a list of the aforementioned fund’s holdings at the end of the prior quarter, visit the Paladin Funds website at http://www.paladinfunds.com/holdings/blog
