XLY, the Consumer Discretionary Select Sector SPDR ETF, closes the week in an awkward spot for bears — the fund rallied 3.1% to $117.28 while shorts continued trimming, leaving the positioning story one week further removed from its early-June bearish peak.
The short-side retreat is now a confirmed trend, not a one-day anomaly. Short interest dropped another 7.4% on Tuesday alone, falling to 11.14 million shares, or 11.3% of free float. That's down from the June 22 peak of nearly 11.95 million shares flagged in last week's note. The one-month change still shows a 13.5% increase — so the overall short book remains larger than it was in early June — but the direction of travel has clearly reversed. Bears who built positions into the late-May lows are now pulling back as the ETF recovers ground.
The borrow market tells a complementary story, though one full of noise. Availability swung violently on Tuesday — plunging to just 30.7%, the tightest reading in weeks — before snapping back to 86% on Wednesday. That mid-week spike almost certainly reflects end-of-quarter mechanics rather than a genuine shift in demand for borrows. Cost to borrow dropped 20% on the week to 0.76%, well off the intra-month highs above 0.95%, and remains in "low" territory by any reasonable standard. The borrow is cheap, availability is adequate, and there is no squeeze pressure in the lending market right now.
Options positioning has been remarkably stable through all of this. The put/call ratio of 2.74 is running just above its 20-day average of 2.69, with a z-score under one — firmly in neutral territory. The structure is worth noting: an ETF that persistently carries a put/call ratio above 2.5 reflects the steady baseline demand for downside hedges in the consumer discretionary sector rather than any acute bearish bet. The 52-week PCR high of 42 shows this ratio can spike dramatically in stress scenarios; the current reading is nothing like that. Options traders are neither excited nor particularly alarmed.
The short score has edged lower across the week, closing at 55.1 versus readings near 57-58 at the start of the week — a slight but consistent softening that tracks the short interest unwind. Institutional flows from the most recent filings show Charles Schwab adding roughly 188,500 shares in Q1, while BlackRock and Northern Trust both trimmed modestly. None of the moves are dramatic, and ownership remains broadly passive in character, as expected for a sector ETF of this kind.
What to watch next: whether the one-month short interest build — still 13.5% larger than early June levels — resumes as the ETF tests the $117-$118 range, or whether bears continue to step away from a sector showing unexpected resilience into the second half of the year.
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