A couple of days ago as I got in my car and turned on Bloomberg Radio, the head of Interactive Brokers (IBKR) Thomas Peterffy stated that across all their accounts at the firm the average client is net short. This is important for several reasons. First, Interactive is like a Charles Schwab & Co (SCHW) where clients give them custody of their assets and trade. However, Interactive's clients tend to be more professional traders and those with considerable assets.

So our first take is that they could be a contrary indicator. To determine this we look at several of our own indicators. First, the Erlanger Commitment of Shorts (ECOS) is led by "dumb short sellers." Currently, 18 of our 24 sectors are led by these short sellers, with only six sectors seeing “smart short selling.” Those would include banks, household & personal products, healthcare equipment & services, materials, automobiles & components, and capital goods.

We would prefer to see more sectors led by smart short sellers. In addition, short interest is on a multiyear low across our universe of 4,700 stocks. So if Interactive’s clients are net short, then that is not true of the entire market, as it is flying rather naked. Also, put activity is not close to an extreme.

We usually see excessive put activity rise as the market begins to fall, and so far there is no indication of puts being bought or calls being sold to limit losses. Instead, there is just a lack of action in the options pits.

Another key researcher that we work with, Robert Ross of Ross Applied Investment Strategy (RAIS), remarked in a recent note entitled “Does The Santa Claus Rally Have Legs Into 2021?” that with the December expiration, new hedges for 2021 have not been established and that is a risk to the market, as volatility would have to be bought as the market fell.

Last, the technicals remain in good to great shape. Most stocks are outperforming the S&P 500 in the last few months, volume is positive, and market breadth remains solid. These indicators can change very quickly, but so far there is little reason to be a seller and give up on the rally since November. In fact, back in 2016, the market began to rally after President Trump won, and it continued until late February before finally pulling back in January of 2018.

Geoff Garbacz is the co-founder and one of two principals in Quantitative Partners, Inc. (QPI).