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XLI is continuing to unwind the extreme short positioning that defined September, with bears retreating for a second consecutive week and the borrow market staying comfortably open.
Short interest has fallen again. The previous note recorded 16.4% of free float on October 6. It has since dropped to 15.6%, down a further 6.3% over the past week. That brings the total retreat from the September 25 peak of 17.3% to roughly 10% of the position unwound. The ORTEX short score has also eased, sliding from 70.4 on October 1 to 67.3 on October 12. Elevated by any normal measure, but the trend is pointing the wrong way for bears. The month-on-month figure, up 27.6%, still reflects how much was added during September's build. The retreat, however, is real and consistent.
The borrow market reinforces that story. Availability is running at 121%, meaning there is more than enough supply in the lending pool to absorb current short positions with headroom to spare. That is a long way from September 21, when availability hit its 52-week floor of 1.3% and every share in the pool was effectively lent out. Since then the pool has reopened steadily. Cost to borrow has barely moved, sitting near 0.85%, up just 1% on the week. There is no friction in the lending market right now. Bears who want to add can do so cheaply. Those who want to exit face no squeeze pressure.
Options positioning is consistently defensive for this ETF, though less so than a month ago. The put/call ratio is at 1.67, slightly below its 20-day average of 1.77, putting it near the lower end of recent readings. The 52-week range runs from 1.32 to 5.54, so today's reading is closer to the calm end of that band. Options traders are not panicking, but they are also not betting aggressively on the upside.
Institutional flows as reported to June 30 show a split picture. Morgan Stanley and JPMorgan both trimmed positions meaningfully in the second quarter, while Wells Fargo added. Goldman Sachs cut by the largest amount in absolute terms, shedding over 1.6 million shares. Those moves are three and a half months old, but they are the most recent available, and the direction from the larger banks was cautious.
The ETF itself is down 1.7% on the week and 2.1% over the past month, closing at $168.67. That underperformance has come alongside the short reduction, which means shorts are covering into a declining price rather than a rising one. What to watch next is whether that covering accelerates or stalls: if XLI stabilises here, there is still enough short interest at 15.6% to generate meaningful covering pressure on any positive catalyst from the industrial sector.
See the live data behind this article on ORTEX.
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