XLY, the Consumer Discretionary Select Sector SPDR ETF, heads into the second week of July with the bear case looking increasingly thin — shorts are still retreating, borrow costs have collapsed, and the ETF has held near its recovery highs.
The short-side pullback flagged last week has deepened further. Short interest fell another 8.1% over the past week to 11.06 million shares, equivalent to 11.2% of free float. That's the lowest reading since mid-June and a meaningful step back from the June 22 peak of nearly 11.95 million shares. The one-month change still shows a net 9.3% increase — the overall short book remains larger than it was in early June — but the direction has been consistently lower for two straight weeks. Bears who built into the late-May lows have been unwinding as the ETF held its ground.
The borrow market confirms the retreat is genuine, not mechanical. Availability has expanded sharply, jumping from roughly 71% a week ago to 184% today — more than twice the shares borrowed are now sitting available in the lending pool. That's a dramatic loosening compared to the sub-31% tightness seen on June 29, which last week's note flagged as likely end-of-quarter noise. That reading now looks like exactly that: a temporary squeeze that resolved as soon as the calendar flipped. Cost to borrow has more than halved over the week, dropping from around 0.76% to just 0.36% — a level not seen since late May. The short score has also eased, sliding from 57.6 on June 29 to 51.5 today, reflecting the combined loosening of short pressure across all dimensions.
Options positioning is notably stable and offers little incremental signal this week. The put/call ratio has barely moved, running at 2.61 against a 20-day average of 2.67 — essentially flat, with a z-score of -1.1 suggesting options traders are slightly less defensive than usual rather than more so. For context, the 52-week range runs from 1.07 to 42.0, so the current reading is unremarkable. The absence of options stress is consistent with the broader theme: hedging demand is easing alongside the short book.
On institutional ownership, the picture from the most recent 13F filings (through March 31) shows a split flow. Morgan Stanley added 760,000 shares in Q1, while Goldman Sachs trimmed by nearly 950,000 and Columbia Management cut its position by over 1.2 million shares. UBS Asset Management was the most aggressive buyer, adding 1.87 million shares. None of these moves are recent enough to read as a direct signal on current positioning, but the divergence among large holders reflects the broader uncertainty about consumer discretionary's near-term path. Note that analyst price target data for this ETF is stale by many years and has been excluded.
What to watch: whether short interest continues its current descent toward the pre-June-buildup levels near 10 million shares, or whether the one-month overhang stabilises here — that gap between the direction of travel and the still-elevated one-month change is the key tension in the positioning story going forward.
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