XLK has staged a sharp weekly recovery — up nearly 7% to $185.14 — but short sellers are quietly rebuilding positions even as the ETF rallies, creating an unusual divergence between price momentum and bearish positioning.
The short interest story has reversed course again. After retreating from the May 12 peak of 15.8 million shares — the move that anchored last week's note — SI has climbed back to 15.5 million shares, or 4.75% of float. That's a 3.2% rise on the day and a 3.2% gain on the week. The month-on-month increase is now running at over 9%. This is the same rebuilding dynamic flagged two weeks ago, but it is materialising against a backdrop of a strongly rising ETF price rather than a falling one — which makes the positioning more notable. Bears are not capitulating into the rally; they are adding.
The borrow market is tightening in step with that rebuild. Availability has dropped to 308% from around 410% last week — a 25% weekly tightening — and from the 802% reading seen in late April. That April reading represented the loosest borrow conditions of the past month. The move back toward 308% is not yet alarming — there are still more than three shares available to borrow for every one currently shorted — but the directional shift is consistent with the short interest build. Cost to borrow has nudged up to 0.53%, its highest reading in a week, though at these levels it remains firmly in "easy borrow" territory. The ORTEX short score ticked up to 41.0, a ten-day high, reinforcing the modest bearish tilt.
Options positioning, by contrast, has turned notably less defensive. The put/call ratio has pulled back to 1.97 from the 2.07-2.08 range that defined last week's note — and which at the time registered as roughly 2.6 standard deviations above the 20-day mean. That elevated reading signalled unusually heavy hedge demand. This week the ratio is essentially flat with its 20-day average of 1.98, just 0.12 standard deviations below it. The elevated defensiveness has unwound almost entirely. The divergence between the two signals is now reversed from last week: then, short interest was falling while options traders hedged harder; now, short interest is building while options traders shed protection.
Institutional holders reported through end of March show a broadly constructive picture. UBS Asset Management added the most aggressively, building its position by 3.4 million shares to nearly 13 million. JPMorgan added 1.3 million shares in the same period. Wells Fargo and Morgan Stanley, the two largest disclosed holders at 3.6% and 3.0% of shares respectively, both added modestly. On the other side, Columbia Management trimmed by roughly 1 million shares and Focus Partners cut by 142,000. The balance of institutional flows was net additive heading into the current rally.
The week to watch is whether short interest continues to build even as price holds above $185, or whether the rally forces some of those recently added positions to cover — particularly given that borrow availability, while still comfortable, is tightening at a consistent pace.
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