The high volume of shorts – a potential bullish signal for the SP500?

/ The article is not a trade recommendation. /

Bearish positioning among hedge funds and retail investors provides a technical setup that points to continued gains for the S&P 500.

Commodity Trading Advisors, or CTAs, that surf asset price trends by going long and short in the futures market, primarily through algorithmic trading, may be forced to cover short positions. That group is currently betting about $26 billion against the S&P 500, near its largest short position since at least October 2021.

Allocations to U.S. stocks fell to an 18-year low this month in the latest survey of money managers by one of the major investment banks.

Pessimism also prevails among individual investors. For the 15th straight month, the percentage of consumers who expect lower stock prices in the coming year exceeded those who expected higher stocks, according to the Conference Board’s monthly survey. This is the second-longest streak of negative sentiment in the data since 1987, behind only the 18-month period during the global financial crisis.

All the defensive positioning creates a prerequisite for at least a short-term rise in the US indices.

SP500 Short term Profile

The market profile of the last 30 days shows a stronger increase in volumes in the zone 3990 – 4010, which suggests a difficult transition in the event of a fall to these values and the zone is support.

Technical Picture

Potential test of the upper limit (4150 – 4250) of the price range. Sequential has printed 4 to complete 9, there is still a lot of potential and DeMarker breaks oversold – a sign of momentum strength. MA stayed with the golden cross.

Conclusion:

A bounce back early next week around the 4000 – 4050 zone could provide an opportunity for trend positioning with a potential target in the 4150 – 4250 zone.

Alternative scenario:

A close below the ascending channel and a break of the 200MA invalidates the current bullish scenario. Stop loss for longs below 200MA, measured against the size of the margin account.