To the S&P Mattresses! Bearish Bets Spike

Short positions are dominant on the SPX and SPY

Jun 17, 2015 at 8:55 AM
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If you're looking for another data point that suggests there's more fear and bearishness out there than meets the CBOE Volatility Index (VIX) Eye, there's this from Bloomberg: 

"Large speculators held about 12,000 more short positions in S&P 500 futures than long ones through June 9, according to data compiled by Bloomberg and the U.S. Commodity Futures Trading Commission. That's the highest amount of bearish bets relative to bullish ones since the five days ending Oct. 24. 

… [A]bout 8.5 percent of shares in the SPDR S&P 500 ETF Trust had been sold short as of Friday, the biggest proportion since Oct. 27, Markit Ltd. data show." 

It's always tough to know the whole picture when you see numbers like that. Are there more S&P 500 Index (SPX) shorts because there are more bullish bets somewhere else? Are hedges loading up on individual stocks and banking on their alpha-producing ability in a churning market? Maybe, but there's not any evidence of that. Are they shorting volatility vs. those futures shorts? Not exactly; it looks like they're also buying volatility.

Yada yada yada … It's probably safe to infer these are indeed bearish bets, or at least more aggressive hedges vs. pre-existing pitches, so it's a spike in bearish sentiment by the "sharp" money crowd. On the plus side, the money wasn't so "sharp" last time they tilted this bearishly. Here's the SPDR S&P 500 ETF Trust (SPY) since last September:

 

150617Warner

 

And as you can see, it was a very different backdrop last time they loved them some futures shorts this much. We were on the upswing of the "V" after a large drop, whereas now we're sitting in a frustrating and seemingly endless churn. 

In other words, there was ample reason to take a more bearish posture back in October, whereas now it's a never-ending attempt to front the lousy news that will surely knock us for a loop.

It might, but it's probably not going to start with the masses so well-positioned for it. This Todd Salamone guy, Schaeffer's Senior VP of Research, says it best: "This could be a longer-term tailwind as positions unwind and as we get some direction on the uncertainty we're facing."

Disclaimer: Mr. Warner's opinions expressed above do not necessarily represent the views of Schaeffer's Investment Research.
 

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