Is NYSE Short Interest Flashing a Major Sell Signal?

One chart that is making the rounds and producing a good deal of concern is the New York Stock Exchange (NYSE) short interest. As of the end of January, total short interest is over 18 billion shares. This is significant, as it is near the level hit in July 2008, a few months before the worst of the financial crisis. The shorts were right back then, raising the question, could they be right again?

NYSE Short Interest Is Near July 2008 Levels
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Source:  LPL Research, Bloomberg 2/23/16

 

Here is what you won’t hear when you read the headlines and look at only that chart. The NYSE isn’t the only exchange, and if you look at the total U.S. market short interest you’ll see it sits at just over 23 billion shares. This is more than 15% below the peak of 27.3 billion shares in July 2008. Although this is high, it isn’t an all-time high.

Maybe Short Interest Isn’t Near an All-Time High

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Source:  LPL Research, Bloomberg 2/23/16

 

Lastly, if you look at the total U.S. market short interest as a percentage of the float, this is well beneath the 2008 peak as well.

Short Interest as a Percentage of Float Tells a Much Different Story
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Source:  LPL Research, Bloomberg  2/23/16

 

In conclusion, the headline that short interest is at the same level as right before the financial crisis is misleading. Digging deeper shows this isn’t the case; and although short interest is higher across the board, it might not be the huge warning sign that so many are making it out to be.

 

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Past performance is no guarantee of future results.

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