XLC Borrow Tightens Again as Shorts Continue to Unwind

XLC, the Communication Services Select Sector SPDR ETF, presents a split picture this week: short interest has kept falling, yet the borrow market has quietly tightened again.

The positioning story is one of continued short covering paired with a small uptick in borrow cost. Short interest dropped another 7% over the past week to 5.51 million shares, or 2.44% of free float. That extends the retreat from the early-October peak of around 8 million shares flagged in earlier notes, and puts the position at its lowest level in the 30-day window. The direction of travel is clearly less bearish. Yet the borrow cost moved the other way: it jumped 42% over the week to 0.72%, reversing the halving seen in the prior note. That is still a low absolute rate, well below the 1.13% peak from early October, but the one-day move from 0.46% to 0.72% is worth watching. Availability, meanwhile, has loosened sharply. At 427%, there are now more than four shares available to lend for every share currently borrowed, up from around 207% a week ago. That is close to the most relaxed the lending pool has been in months, meaning the borrow cost tick-up is not a supply problem.

Options positioning reinforces the cautious-but-not-alarmed read. The put/call ratio of 1.40 sits just below its 20-day average of 1.43, with a z-score of -0.60. That is slightly less defensive than the recent norm, a mild softening of the protective bias that has been a consistent feature of this ETF's options market for the past month. The 52-week PCR range runs from 0.74 to a striking 12.05, the latter reflecting an extreme hedging episode in mid-September when the ratio briefly exceeded 5.5 before normalising sharply. The current reading is well within the post-September range, suggesting no fresh surge in downside protection demand.

The price action is quiet. XLC closed at $110.19, down 1.9% on the week but barely changed over the past month. The combined ORTEX score of 38 places the fund in the lower third of the universe, consistent with a sector that is not attracting strong momentum or quality conviction right now. Valuation multiples, based on underlying holdings data from September, show a trailing PE of 19.0 and a price-to-book of 2.9. Both edged higher over the past 30 days, reflecting modest multiple expansion even as the price drifted.

The most coherent read across these signals is that the aggressive short trade that peaked in early October has largely been unwound, but the borrow cost nudging higher again, even with ample availability, suggests someone is paying up to establish a new position rather than covering an old one. Whether that demand grows is the thing to watch heading into the rest of the week.