Short sales have dropped to a six-month low in the stock market, but ironically enough, that may be a bearish sign for investors.
Short interest on the Standard & Poor’s 500 Index fell to 8.77 billion shares as of July 31. That represents a 12 percent decrease from two weeks before, according to data from U.S. exchanges and Bloomberg.
The tumble is the biggest since Sept. 30. Investors curbed their short sales of financial stocks the most, cutting them by 31 percent to 2.05 billion shares, Bloomberg reports.
The market has been on a torrid run since the S&P 500 hit a low of 667 March 6, rising 51 percent.
“People don’t want to get in front of a market that’s going the other way,” Michael Cuggino, a money manager at Pacific Heights Asset Management, told Bloomberg.
“I view it as a potentially contrarian indicator in that if you have, on a macro level, more people betting that stocks are going to go up, maybe you should start thinking the other way.”
Short interest in Citigroup fell the most of any stock in the S&P 500, plummeting 72 percent to 343.3 million shares.
Superstar stock guru Robert Prechter clearly sees the drop in short interest as a bearish signal. He told Yahoo! he’s not certain when the rally will end — yet it will.
“But what I’m quite sure about is that the next wave down is going to be larger than what we've already experienced."
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