The action in short interest is rather interesting.
I’ve been saying for months now that short interest on all optionable equities (about 2,600 in our DB) has been very high. This suggests there are still a good deal of shorts out there that could be forced to cover as we move higher. In other words, yes price might ‘look’ high – yet a deeper look shows there is potentially massive buying pressure.
Well, the shorts look like they are starting to capitulate. According to the recent data, total short interest fell 4.85% and is now down 9.7% from its June ’12 peak.
What I like about the chart above is historically a lower trending short interest has been rather bullish for the SPX. Take note, higher trending short interest is usually bearish for the SPX. So here we have an indicator that has been right on both sides of the SPX action, gotta like that. You have to love the fact we have a firmly lower trend in place, yet, there is still plenty of room for it to drop before it gets near the lows of last year.
In other words, yes, we are making five year highs – yet, there very well could be plenty of buying pressure even at these levels.