European markets have risen sharply this year, helped by stronger local currencies and rallies in stocks. At the same time, short interest has climbed significantly, with some positions up 50%. This marks a major shift compared to the US, where short interest has moved lower in line with falling markets, wrote S3 Partners.
The article highlighted factors such as:
- European markets are considerably higher in local terms
- With the dollar lower and the European currencies higher, the European markets are way up year-to-date
- Short interest as a percent of float is much higher
- With these elements combined, short interest notional are up as much as 50%
“This increase in short position is a reversal strategy and changes the balance between US and European short interest,” S3 wrote.