XLE Bears Retreat: Short Interest Drops 12% as Bulls Take Options Lead

Three data streams on XLE just flipped in the same direction. Short sellers are covering. Options traders are turning bullish. The borrow market is loosening. That is a notable shift from the accumulation trend described in last week's note.

Covering Accelerates

Short interest fell 12.4% in one week to 56.6 million shares — 18.9% of the free float. That is the sharpest weekly covering move since the late-May peak of 68.9 million shares. It marks a clean break from the rebuild flagged on June 24, when bears had pushed back toward 64.6 million shares.

One week does not end a trend. The month-on-month figure is still negative at -11%. But the pace of this week's covering is significant. Bears returned roughly 8 million shares in five sessions.

Borrow Market Opens Up

Availability has swung sharply in the other direction. It now sits at 128% — meaning more shares are available to borrow than are currently lent out. That is a dramatic reversal from June 22, when availability was just 36%, one of the tightest readings of the past month.

The intraweek move tells the story clearly. Availability was 36% on Sunday. It widened to 53% by Tuesday. By Thursday it had reached 128%. Cost to borrow has pulled back to 0.73% after briefly spiking to 0.94% mid-week.

The late-May extremes remain the reference point. Availability dropped below 10% on three consecutive days in that period. The current 128% reading is the loosest the borrow market has been since mid-May.

Options Traders Shift Tone

The put/call ratio hit 1.4757 on June 25 — the lowest in two weeks. The 20-day average is 1.59. At a z-score of -1.90, the PCR is nearly two standard deviations below its recent mean. Options traders are adding calls relative to puts at a rate not seen recently.

The PCR has been in structural decline since late May, when it was running above 1.73. The direction has been consistent. Bulls are building positions through options as shorts reduce through covering.

What to Watch

The ORTEX short score sits at 62.3 — elevated, but stable over the past two weeks. That suggests the data has not yet resolved into a clear directional conviction. The key question is whether this week's covering continues or proves to be a one-week flush. A second consecutive week of material short interest reduction, combined with availability staying above 100%, would confirm the bear thesis is losing momentum.

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• SI % of free float: 18.9% (down from 21.5% last week)
• Weekly SI change: -12.4%
• Availability: 128% (up from 36% on June 22)
• Cost to borrow: 0.73%
• Put/call ratio: 1.48 (z-score: -1.90)
• Short score: 62.3
• Price: $54.09, +0.97% on the day, -9.1% over one month