XLI Short Sellers Retreat as Borrow Loosens

XLI, the Industrial Select Sector SPDR ETF, heads into July with the borrow market telling a completely different story from the tightening episode flagged just a week ago — availability has swung from constrained to comfortable, short interest has retreated, and the fund has rallied nearly 4% on the week.

The reversal in the lending market is the standout this week. Availability has jumped to 283%, up 78% from last week's reading, and borrowing costs have dropped sharply — falling 25% on the week to 0.69%. Compare that to the June 24 note, which described costs nearly doubling and availability contracting to 159%. That pressure has now unwound. The contrast with late May is even starker: availability touched a 52-week low of just 2.1% in mid-May, when borrowing costs were running well above 1% and the borrow market was genuinely stretched. Today's reading signals a materially looser environment — roughly 2.8 shares available for every one currently borrowed.

Short interest reinforces the same direction. Bears have been retreating for a month. Short interest fell nearly 6% on the week and is down about 9% over the past 30 days, coming in at 20.6 million shares — 13.5% of the float. That is well off the late-May peak of roughly 23.7 million shares. The ORTEX short score has also eased, dropping from a peak near 64 on June 22 to 58.7 now, consistent with a measured unwinding rather than any dramatic capitulation. The borrow and short interest data point in the same direction: shorts that rebuilt positions in late June are trimming again as the fund pushes higher.

Options positioning does not suggest much urgency either way. The put/call ratio is running at 3.2 — structurally elevated for this ETF, as it has been all year, with the 20-day average near 3.4 and a 52-week range of 2.0 to 5.5. The current reading is actually slightly below that recent average, with a z-score of -0.6, meaning options positioning is marginally less defensive than it has been. Nothing in the options market looks extreme relative to XLI's own history.

The broader picture is one of steady improvement. The fund is up 7% over the past month and 4% this week, closing at $185.23. Institutional flows among the top holders are modest and mixed — Citigroup added around 206,000 shares through March, BNP Paribas added roughly 448,000, while BlackRock and Factory Mutual trimmed. None of these moves are large enough relative to the fund's size to be a primary driver. The most recent quarterly dividends — $0.453 in March and $0.444 in June — show steady income generation, with payouts running above the 2022 comparable quarters. What to watch next is whether the combination of easing short interest and loosening borrow translates into sustained price momentum, or whether a fresh macro catalyst brings shorts back into the ETF for a third time this month.