Earlier today, we showed Barclays’ calculation how, in a market in which there have been a gargantuan $128 billion in stock outflows YTD, the stock market has seen an unprecedented surge higher. The buyers, as Barc calculated, were buyers of index futures, such as central banks (“net buying of US equity futures since March ($60bn notional) has surpassed the amount of buying between October 2011 and May 2013“), corporations buying back stock (“The biggest buyers of equities are corporates themselves with S&P 500 net buybacks rising to $500bn over the last four quarters from $375bn in 2013“), and last but not least: short covering.
As Barclays reported, for S&P 500 stocks, the flow to US equities from short-covering since March has been $60bn, and $26bn since June.
This means that as of this moment, the S&P500 short interest as a percentage of market cap is at three year lows, as most of the weak hands have been flushed out.
The flipside of shorts officially throwing in the towel, is that going forward it will be much more difficult to push stocks higher simply from squeezing shorts or forcing covers. Then again, with short interest at approximately 2.0%, there is still a chance it may fall further. In early 2007, just before the financial crisis emerged, short interest was just above 1.6%. In other words, while going forward the pain for shorts will be substantially lower than over the past year, it may still continue for a while should central banks continue to push everyone into stocks.
The ProShares Short S&P500 ETF (NYSE:SH) closed at an all-time low of $37.86 per share on Monday, down $0.11 (-0.29%). The most popular ETF for traders to short the S&P 500 with has plunged 9.3% year-to-date.