Short Sales Decline 53% as Bull Market Enters Fifth Year

“Investors reduced bearish stock bets to the lowest level since at least 2007 as the bull market in American equities begins its fifth year.

Short sales in the Standard & Poor’s Composite 1,500 Index fell to 5.6 percent of shares available for trading in February, down from a record 12 percent during the credit crisis and the lowest ever in data compiled by Bespoke Investment Group and Bloomberg starting six years ago. The last time the number of shares borrowed and sold short approached this level, the equity gauge lost 3.3 percent in the next three months.

Bulls say the capitulation by market bears shows the rallyremains intact and that more money will flow into stocks after individuals sent $37.9 billion to mutual funds in January, the most since 2004. It also means a source of demand is diminishing, a traditional signal for caution in an aging bull market. Less than one percent of the shares of Ford Motor Co. and Cabot Oil & Gas Corp. (COG) have been borrowed and sold short by speculators hoping to return them to owners once prices fall.

“When you look at short interest, and it’s low like right now, it means people are very, very bullish about the market,” Uri Landesman, president of New York-based hedge fund Platinum Partners, which manages $1.15 billion, said in a Feb. 28 phone interview. “When that happens, it’s a bearish sign, because if all minds change, there’s downside, not upside.” …”

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