The technology-laden Nasdaq Composite Index stands less than 2% from its early September peak, as of late Tuesday trade, reflecting its resurgence from its jaunt into correction territory less than a month ago.
However, rather than betting on continued progress in the popular benchmark that has led the run-up from coronavirus-induced lows, investors are mounting bets that the benchmark continues to be overpriced and faces a fresh collapse in the near-term.
“Somebody, somewhere, still wants to bet against this market,” writes Jason Goepfert, head of SentimenTrader and founder of independent investment research firm Sundial Capital Research, in a Tuesday research note.
Goepfert writes that so-called short interest, or the total number of shares of a particular stock or fund that have been sold short by investors, but haven’t yet been covered or closed out, on stocks trading on the Nasdaq Composite COMP, -0.10% rose in the last two weeks of September to around the highest level in 10 years, at around 9.7 billion shares (see chart below expressed as a percentage below a chart of the Nasdaq Composite’s absolute value).
Of note, Goepfert said some investors view rising short interest as a contrarian sign, one that may signal a bullish trend for the benchmark market, since it also reflects a potential snapback trade for stocks if bearish investors suddenly are forced to unwind their short bets and buyback stocks they have borrowed in their short bets.
However, the SentimenTrader analyst says investors willing to dismiss the current rise in short-term interest, or view it as a potential cause for buying and not caution, do so at their own peril.