XLB is showing its first signs of short-side retreat this week — but the structural bear case against materials has not been abandoned.
Short interest has pulled back from the highs flagged in last week's note. At the June 9 peak, shorts had rebuilt to 25.5% of free float — the most aggressive positioning in over a month. Since then, the position has trimmed by roughly 7% to 23.7% of free float, or about 13.7 million shares. That is still meaningfully elevated versus the mid-May trough near 10.9 million shares, and the weekly change is still positive — up nearly 5% over the past five sessions when measured from the prior week's base. Shorts are covering at the margin, not exiting.
The borrow market tells the more interesting story this week. Availability has swung dramatically — from just 9.7% on June 1, when the lending pool was near-fully exhausted, to nearly 50% as of June 16. That is a genuine loosening: roughly one share is now available for every two already borrowed, compared with one share for every ten at the tightest point. Cost to borrow has also eased, falling 24% over the past week to 0.52% — well below the late-May peak above 1%. The 52-week availability low remains a striking 3.85%, a reminder of how extreme the squeeze conditions were just weeks ago. The direction is clearly toward relief, but 50% availability is still in the tight-to-normal boundary — this is not a fully open market. Options positioning is only modestly more defensive than usual, with the put/call ratio at 0.71 versus a 20-day average of 0.67 — barely half a standard deviation above the mean — suggesting options traders are not driving any particular narrative here.
The ORTEX short score has drifted slightly lower over the past week, from a peak of 62.4 on June 9 to 60.8 as of June 16. That mild softening is consistent with the small short-covering move: the composite signal has eased but remains firmly in elevated territory. No analyst data is available for XLB that clears the staleness threshold — the most recent recorded targets predate the current market environment by many years, so Street price-target framing is not applicable here. The ETF's composition — materials giants across chemicals, metals, and mining — means the macro picture is doing most of the analytical work. The recent note flagged softer copper, aluminum, and steel pricing as the underlying driver; that backdrop has not materially changed, and XLB's 3.8% weekly gain likely reflects a bounce from oversold conditions rather than a fundamental shift in the commodity demand outlook.
On the institutional side, the most notable Q1 13F flows were aggressive additions — BNP Paribas added nearly 4.75 million shares, Wells Fargo added 2.9 million, and Citadel added 2.5 million. Bank of America added 2.5 million as well. Set against those buys, Morgan Stanley and Goldman Sachs were modest sellers. The pattern suggests that at least some institutions were using the first-quarter dip to add exposure, even as short sellers were building the opposite position — a genuine tug-of-war with size on both sides.
The tension to watch now is whether the short-covering observed this week continues as availability loosens further, or whether the macro headwinds — softer commodity prices, recession concerns — prompt bears to re-establish positions if the ETF's rally fades.
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