Retail Traders Hold Most Extreme S&P 500 Net Short Position in 2 Years

Talking Points

• S&P 500 net short exposure rose to a 2-year high of 92 percent
• With the index hitting record highs this past week, traders seem intent on calling a reversal
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Having trouble trading indexes such as the S&P 500? This may be why.

In early February 2016, the S&P 500 index hit a 2-year low of 1,807.50 – as can be seen on the chart below. At the time, the Speculative Sentiment Index (SSI) showed that 56 percent of retail CFD traders were net long – barely a majority but the most bullish for the group in a long time. Since then, the S&P 500 rallied more than 20 percent and the slight bullish majority quickly transitioned into an intense bearish crowd.

As of Friday’s close, the S&P 500 stood at a record high. Meanwhile, showing an exceptional skepticism, the percentage of traders looking to ride further advance (long the index) shrank to a paltry 8 percent, the smallest percentage in 2 year low. The SSI is a contrarian indicator at extreme levels. In this case, since roughly 92 percent of traders are short the S&P 500, the standard interpretation of investors’ appetites to pick tops and bottoms would suggest further gains may be in order. However, with a laundry list of high-profile event risk including the FOMC rate decision; US, Eurozone and UK GDP figures; and ECB’s bank stress test results due, caution and close monitoring of the newswires will be crucial.