XLE has rallied sharply this week, and the short book that drove the previous note's headline is finally showing signs of retreat — though the lending market tells a more nuanced story than a simple short squeeze.
The prior note, published August 5, flagged a lending pool that had gone fully depleted, with availability at 15% and every share in the borrow market out on loan. That has changed materially. Availability has loosened to roughly 29% — still tight by any normal standard, but a meaningful step back from the extreme. A week ago availability was running at just 17%. The 52-week low was 9.8%, reached at the peak of the short build, and the current reading is now almost three times that floor. The borrow cost has also eased, dropping nearly 30% on the week to 0.52% — a low fee that signals no acute squeeze pressure in the lending market right now.
Short interest has pulled back too, though the broader position remains substantial. SI dropped from around 66 million shares at the start of the week to 63 million by Tuesday, trimming the free-float percentage from a recent high of roughly 22% down to 21%. That's still a high reading by any measure, and it's worth noting that one month ago SI was closer to 55 million shares — so the current level is still about 15% above where it was in early July. The directional story has shifted from active accumulation to modest trimming, but shorts have not meaningfully unwound the position they built through late July and early August.
Options positioning corroborates the cautious mood. The put/call ratio holds at 1.53, modestly above its 20-day average of 1.48 — a mild lean toward downside protection that has been consistent throughout the past month. What's notable in the options history is the step-change that occurred in mid-July: from early July through July 16 the PCR was running in the 1.31–1.39 range, then it jumped to the 1.49–1.56 corridor from late July onward and has stayed there. That shift coincided exactly with the short-interest acceleration and the borrow crunch. Both remain elevated even as SI begins to ease.
The institutional ownership picture adds context to the size of this short position. Goldman Sachs holds 5.4% of shares, Morgan Stanley 5.3%, and JPMorgan 3.4% — the top three holders are all large broker-dealers whose positions likely reflect a mix of client facilitation and proprietary hedging rather than pure directional conviction. That makes the institutional register less informative as a sentiment read than it would be for a single stock. The ORTEX short score has edged down from its peak of 64.9 on August 6 to 63.6 now — still elevated but no longer accelerating, consistent with the slight easing in SI and availability.
The key dynamic to watch is whether availability continues to loosen as the stock rallies, or whether any price weakness brings fresh short demand back into a still-constrained lending pool.
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