Don’t be fooled by the flimsy rebound in stocks

Trader on the floor of the New York Stock Exchange.

The bounce in both oil futures and stocks, which started with an abrupt intraday reversal a week ago, has many on Wall Street calling it a short-term bottom. But deeper market analysis shows the rebound was driven mostly by short covering, and could indicate the rally will lose steam due to lack of true buying interest.

The average stock in the S&P 500 had a short position of 3.43 percent Wednesday, surpassing the 2011 peak of 3.19 percent and hitting highs not seen since March 2010, according to Markit. With stocks moving in lockstep with oil, it is no surprise that crude futures also have an all-time high net short position.

Energy stocks have the greatest amount of money bet against them, as short interest increased across all 10 S&P 500 sectors, Bespoke Investment Group said Thursday. GameStop, Chesapeake andTransocean have the greatest percentage of short interest among individual stocks, the data showed, while utilities and financials had the lowest level of shorts.

Expectations are that the level of short interest could soon rise to new records, a negative sign for the market, traders said.
[“source -pcworld”]