QQQ Short Interest
Todd mentioned that the QQQ short interest is the highest ever. That is indeed true, both on an absolute level (250 million shares) and relative to its average monthly volume. When we compare short interest to volume, and come up with a "short interest ratio", we get 3.09. This means that it would take an average of three days' volume just to cover all the shares currently held short.
From a contrarian perspective, that should be bullish. If the QQQ's start rallying, all that short interest provides fuel as traders begin to cover their positions. However (and this is a big "however"), as I pointed out last week, the QQQ's are an institutional vehicle for the most part. To me, if small traders are holding those shares short, that means one thing. But if they are institutions, that means something else. I don't like to bet against those who have better information and more resources than I.
Let's look at the history of the QQQ short interest ratio to see if it would give any clues:
I can't find anything reliable here. Two previous peaks in the short interest ratio lead to further market declines, suggesting those who were holding short were correct on market direction. However, the history here is so brief, and short interest and volume patterns so seasonal, that I wouldn't read much at all into this short interest figure. If pressed, I would say it is more bearish for the market than anything, simply because of its history and because of the makeup of QQQ traders.
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