This bull market continues short sellers with a near endless melt-up in equities. According to Bloomberg short selling has started to be fazed out as a viable strategy:
“Bets against the Standard & Poor’s 500 Index fell to a one-year low as short sellers reduced speculation that technology and telephone stocks such as Adobe Inc. and CenturyLink Inc. will decline.Short interest on the S&P 500 dropped to 6.87 billion shares, or 3.9 percent of shares available for trading, as of Dec. 31, down 5.7 percent from two weeks earlier, according to data compiled by U.S. exchanges and Bloomberg. It was the third straight period that S&P 500 short selling fell. For technology companies, it slid 8.1 percent to 1.26 billion shares, and it fell 16 percent to 368.4 million for phone stocks.
The benchmark measure of U.S. equities completed its sixth straight weekly gain on Jan. 7, the longest winning streak since April. The biggest two-year advance since the late 1990s has driven the S&P 500 to the highest level since Lehman Brothers Holdings Inc.’s 2008 collapse intensified the worst financial crisis since the Great Depression.
“Most investors can see that momentum is going forward and they are reducing this risk trade because the odds are not in their favor,” said Daniel Genter, president of RNC Genter Capital Management in Los Angeles, which oversees about $3.7 billion. “There’s a lack of volatility, which makes it tough to short on a daily basis, and the upward momentum means it’s a losing proposition to bet against stocks in the longer term.”
Meanwhile, the VIX probes towards its lows and near-term sentiment readings show near universal bullishness. The fundamentals clearly all point higher, but the typical warning flags are all out in force.
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.