100%

I’d venture this is a data point that lacks sufficient nuance, but I suppose it’s worth a mention.

Short interest on SPY sits at a YTD high, according to Markit.

At nearly 5%, ostensible bets against the world’s largest ETF are well more than double levels seen at the beginning of 2021 (figure below).

This a case of “I’m highlighting it because other folks invariably will too.” In fact, Bloomberg made sure to tout it Wednesday, quoting one CIO who said “the surging short interest is in part due to skepticism that the rally can continue or at least that we’re due for a pullback.”

I’m not sure that’s particularly insightful, but then again, when you get contacted for a quote and you’re busy, you fire off a boilerplate soundbite and go back to what you were doing. The media will take it.

And yet, as Nomura’s Charlie McElligott wrote Wednesday, reiterating the main points from a Tuesday note, “SPX upside Call Skew has finally caught a semblance of bid [with] 1m now 50th%ile rank from 21st %ile last Friday on [a] 2-year lookback, while downside Put Skew [has] come off the boil.”

With realized vol collapsing (five-day now ~11 versus ~28 a couple of weeks ago), vol control has the “all-clear” to re-leverage. On Nomura’s model, that bid was $7.2 billion in SPX Tuesday. “We anticipate more in the weeks ahead if daily moves remain insulated as per the current long Gamma / long Delta environment,” McElligott added.

“[The] US Equities market looks to be stuffed to death on options Gamma, with a ton of vol selling seen WTD,” Charlie went on to say.

Irrespective of where you fall in the debate around where equities are headed in an environment that almost everyone agrees is characterized by an unprecedented amount of uncertainty, I’d encourage folks to use common sense when sifting through various mainstream media articles.

For example, the linked Bloomberg piece (above) mentions that one bank’s indicator now shows that the probability of a down market over the next 12 months is “100%.” That’s based on current levels and historical precedent.

Clearly, that isn’t reliable. It’s not that the bank is doing anything “wrong” — backtests can be useful and, at times, extremely interesting. But just remember that no indicator can predict anything with 100% accuracy. If there were such a gauge, you wouldn’t know about it. Someone would’ve built it into an algo, hit “go” and then retired to a chalet somewhere, never to be heard from again.