Yesterday, bi-weekly short interest data was released for the period ending January 30th.  In the chart below, we show the Russell 3000 broken up into deciles based on short interest as a percent of the float at the end of 2020 and these decile’s stock’s median change in short interest from then to yesterday’s release.  As shown, with the short squeeze episode playing out in the second half of January, the stocks that came into 2020 the most heavily shorted have seen the biggest declines in short interest.  That decile of what had been the most heavily shorted names has seen short interest as a percent of float fall for a median of 2.65 percentage points.  Deciles two and three have similarly seen sizable declines, though, they are far smaller than those of the most shorted stocks. On the other hand, the decile of the least shorted stocks is the only one that has seen the median short interest reading move higher since the end of 2020.

In the table below, we show the stocks that currently have the highest short interest as a percent of float.  After the historic move higher, short squeeze poster child GameStop (GME) is no longer the Russell 3000’s most heavily shorted name!  Having dropped over 100 percentage points since the start of the year, only 42.61% of shares are now short compared to 43.57% for Gogo (GOGO); currently the most shorted stock in the index. GOGO has actually seen its shorts come off a bit this year as well but that decline has been far more modest of only a little more than one percentage point.  Of the other stocks in the index, only Tanger Outlets (SKT) and Dillard’s (DDS) also currently have more than 40% of the float sold short.

On the January 27th closing high, GME was up 1,744.53% year to date. But with the short squeeze unwinding, the stock has fallen over 86%.  Others of this cohort have similarly seen big reversals of their earlier surges. For example, National Beverage (FIZZ) had doubled YTD at the time of the GME peak, but since then it has been cut by 33.78%.  Not all of these have been losers since the pinnacle of short selling though. Fulgent Genetics, which now has over 30% of shares short, has risen 91.01%. Clovis Oncology (CLVS) and Ligand Pharmaceuticals (LGND) have similarly seen big gains of over 30%.

Given GME came into the year with an absurd number of shares sold short, the squeeze has resulted in it being the biggest decliner in terms of short interest of any Russell 3000 stock.  Short interest as a percentage of float has fallen over 100 percentage points YTD.  The next biggest drop came from BigCommerce Holdings (BIGC) and Dillard’s (DDS) which both saw larger than 50 percentage point drops.  Of the rest of the top twenty biggest decliners, a baker’s dozen have seen short interest drop by at least 20 points.  Additionally, of these stocks that have seen short interest fall the most, only three—nCino (NCNO), Berkeley Lights (BLI), and 3D Systems (DDD)—now have a single-digit short interest as a percent of float.

Given the massive short squeezes, there are far more stocks that now have a lower short interest as a percent of float than at the start of the year.  In fact, of the Russell 3000 stocks, 1887 have seen declines in short interest compared to only 1146 that have seen an increase.  In the table below, we show the twenty stocks to have seen the biggest increases in SIPF since the start of the year.  As shown, there is only one, International Game Technology (IGT), that has seen short interest rise by double digits since the end of 2020.

Retailers notably dominate the list of stocks with the biggest declines in short interest. To quantify this, in the chart below we show the aggregate number of shorted shares as a percent of total float for each industry group as of the most recent short interest data and the end of 2020.  As shown, just as it was at the start of the year, retailers remain the most heavily shorted industry group, but it has greatly improved with only 5.86% short compared to 8.15% at the end of 2020.  That is the only industry group to have seen short interest drop by a full percentage point or more. The industry group to have experienced the next largest decline was Transportation with aggregate short interest falling from 5.08% to 4.13%.  Conversely, there are two industries, Banks and Materials, that have higher short interest as a percent of float than they did at the end of 2020. Click here to view Bespoke’s premium membership options for our best research available.

So far this year, returns in the US treasury market have gotten off to a bad start.  Based on the performance of the BofA indices, long-term US treasuries are already down over 5% YTD which would be only the second time in the last ten years that the asset class started off the year so poorly.  While treasuries have been weak, not all areas of the fixed income market have performed poorly. In fact, high yield debt, which tends to be more closely correlated to the equity market, is having a much better year, gaining a bit over 1%.

The chart below shows the YTD performance spread between high yield and long-term US Treasuries 28 trading days into each year since 1995.  With a current spread of over five percentage points, high yield is outperforming long-term Treasures by the widest margin since 2012 and the fifth widest margin since 1995.  The only other years besides 2012 where the spread was wider were 2011, 2009, and 2001.

High yield has also achieved a pretty notable milestone this week as spreads relative to US Treasuries have narrowed to their lowest levels since the February 2020 pre-COVID peak in the S&P 500. On 2/19/20, when the S&P 500 peaked before the COVID crash, high yield spreads were at 357 basis points (bps).  After finishing off last week at 358 bps, spreads have narrowed this week to the current level of 351 bps.  It’s certainly been a wild year for the high yield market.  Less than a year after spreads topped 1,000 bps and were within the 97th percentile of all historical readings, today spreads are two-thirds lower and just below the 20th percentile relative to all other readings. So, spreads are very low, but they’re not necessarily at a historical extreme.  Click here to view Bespoke’s premium membership options for our best research available.

We’ve seen some pretty extreme trends over the years, but the recent run of small caps ranks right up there with the best of them. As noted in our Closer report from Monday, the Russell 2000 was further above its 200-day moving average (DMA) than it has ever been before. After Monday’s close, the Russell 2000 was also already up 10% for the month.  While a 10% MTD gain in just six trading days may sound impressive, this month’s performance to start the month was only the best since November – three months ago!  Not only that but in the two months (December and January) between those two 10%+ gains, the Russell 2000 was up over 5% in the first six trading days of the month, and in October it was up over 8%.  In other words, in each of the last five months, the Russell 2000 has been up at least 5% MTD after just six trading days.  It gets even crazier too.  Back in June and August, the Russell 2000 was up 10.25% and 7.04%, respectively, after just six trading days.

In the entire history of the Russell 2000 dating back to 1979, the Russell 2000 has been up at least 5% MTD after six trading days 35 times (7% of all months) and there have never been more than two months in a row of back to back 5%+ starts to the month.  In the last nine months, however, there have been seven 5%+ starts to a month including a streak of five straight.  Included in those seven months, three have also been gains in excess of 10%, and prior to June 2020, that had never happened before.  In the wake of last year’s COVID crash, the rotation into small caps has been unprecedented.  Click here to view Bespoke’s premium membership options for our best research available.

With lower closes for both the DJIA and S&P 500 (Russell 2000 was up), both indices ended six-day winning streaks. The last time that the S&P 500, Dow, and Russell 2000 all simultaneously ended winning streaks of 5 trading days or more was nearly three years ago in February of 2018. Just like now, each of the indices were going on six days of consecutive gains.  June 2014 and April 2010 also saw identical six-day winning streaks for these three indices.

In the table below, we show the past 24 times since the start of 1979 when the Russell 2000 first began that the S&P 500, Dow, and Russell 2000 saw simultaneous winning streaks of at least five days come to an end.  From the close of the first down day that snapped these past streaks, performance has generally leaned positive over the following year. The next week has averaged gains for each of these indices, though we would note, median returns are weaker as big gains following the 2008 occurrence have a heavy impact on the average.  In fact, median performance one week after the end of these streaks is actually weaker than the norm for the one-week performance of all periods for each index.  For the Dow, in particular, there is a median decline over the next week with positive returns only half the time.  One month later has also only seen the index higher half the time while the S&P 500 and Russell are more frequently higher. The performance further out is generally more positive although there is some underperformance relative to the norm.  Although the indices are consistently higher three, six, and twelve months later, only the six month period has tended to outperform the norm across each index.  Specifically for the Russell 2000, performance is notably strong with positive returns 91.67% of the time.   Click here to view Bespoke’s premium membership options for our best research available.

While the yield on the 30-year Treasury bond briefly rose above 2% overnight for the first time in a year, in general, long-dated government yields are lower today. As such, the iShares 20+ Year Treasury Bond ETF (TLT) is bouncing from extreme oversold territory today rising over 0.6%. Even after today’s rally, though, TLT continues to trade well below its 50-DMA as it has for 51 consecutive trading days.

The current streak of consecutive closes below the 50-DMA for TLT has now joined a list of 13 prior streaks of at least 50 trading days long. The two longest of these went on for 93 consecutive trading days ending in February of 2011 and September of 2013.  While the current streak has plenty of time to go to even tie those records, the last streak was very recent ending on November 19th of last year at 63 trading days long. In fact, between the end of that streak and the start of the current streak, there were only two days. In other words, since August 24th, there have only been two days in which TLT did not close below its 50-DMA. Not only that but with TLT currently trading more than 4% below its 50-DMA, the streak isn’t likely to end any time soon.

In the table below, we show each of the past TLT streaks when they first reached 50 trading days long.  For each streak, we also show how TLT and SPY performed going forward. On average TLT has continued to drift lower over the following month, but three months to one year out, performance is generally much more positive.  Returns have been positive better than two-thirds of the time three and six months out with average gains of 1.81% and 5.75%, respectively.  One year later, TLT has traded higher all but once (in November of 2005 when it only fell 8 bps). As for equities, the S&P 500 (SPY) is similarly weak one week after these streaks averaging a decline of 0.46% with positive performance less than a quarter of the time. Again, returns further out are generally more positive with SPY higher 83% of the time 6 months later and 75% one year later.  Click here to view Bespoke’s premium membership options for our best research available.

Friday starts off the Chinese Lunar New Year. Celebrations will last for about two weeks though the official legal holiday is seven days long. As such, Chinese markets will be closed from Thursday (New Year’s Eve) through next Wednesday.   The Chinese lunar calendar is also associated with a cycle of 12 animal zodiac signs, and 2021 will be the year of the ox. While we would be the first to caution against investing based on zodiac signs, ironically, the year of the ox has historically been met with some of the most bullish market performance in the US.  As shown below, in the first week of Chinese New Years that have been marked by the Ox, the S&P 500 has seen an average gain of 0.17%. Only the years of the pig, rabbit, and tiger have seen a stronger performance in the first week of the Chinese lunar year for the S&P 500.

But as for annual performance, from the start of the Chinese lunar year until the end, years of the ox has been marked by the best performance for the S&P 500 with a 13.56% average gain.  The past few years that were the year of the ox were 2009, 1997, and 1985.  The year of the tiger, which the last one was in 2010, comes in with the second-best performance.

As for the performance of the S&P 500 in the shorter term—particularly around the time when the Chinese markets are closed—in the chart below we show the average intraday performance for the first five trading days of the Chinese New Year for all years since 1990.  Despite market closures abroad, the US tends to move steadily higher- and that’s no bull! Click here to view Bespoke’s premium membership options for our best research available.

When it was MicroStrategy (MSTR), it was dismissed as a gimmick, but now that Tesla (TSLA) has used a big chunk of the cash on its balance sheet to buy bitcoin, more people are going to take notice.  TSLA hasn’t historically been a company to shy away from publicity, so some will write off today’s announcement as a marketing stunt, but at $1.5 billion, it would be a pretty big stunt.  Also, while it’s easy to forget, TSLA is one of the largest companies in the world.

Prior to TSLA’s announcement, bitcoin was already up on the day, but once the news hit, the rally reached a whole different level.  Bitcoin is currently trading up over 11% on the day making it the best one-day rally for the crypto-currency since last April.

With today’s rally, bitcoin is also breaking out above its highs from early January and trading at over $43K.

Not only is bitcoin at new highs for the year, but the late 2020 breakout after three years of consolidation is continuing to gain steam.

One of the primary arguments for bitcoin these days is it serves as a digital store of value- or gold 2.0.  Based on the relative strength of bitcoin versus gold, gold 1.0 looks a lot less shiny these days.  When bitcoin last peaked in late 2017, the ratio of bitcoin to gold peaked at just under 15.  A year ago today, the ratio was under six ounces of gold for every bitcoin.  Back in early January, the ratio surged to more than 21 ounces of gold for every bitcoin.  After this morning’s rally, though, one bitcoin is worth more than 23 ounces of gold, and the ratio increases by one ounce for every 4% rally in bitcoin.

So where does interest with the general public currently stand towards bitcoin? One way to track interest is through Google Trends.  The chart below shows search trends for the term ‘bitcoin’ over the last five years. As bitcoin ran up to record highs in late 2020 and early 2021, search interest also picked up but peaked out at levels nowhere even close to where search interest was at the prior peak.  This could be read in one of two different ways.  The bullish case would be that enthusiasm for bitcoin is nowhere near as high now as it was back then, so there’s still much more room to run.  A less bullish take, however, would be that back in late 2017, no one had ever even heard of bitcoin, so they were looking it up just to figure out what it was.  Three years later, though, most people are at least familiar with what bitcoin is, so there is less reason to search for it.  Click here to view Bespoke’s premium membership options for our best research available.