Short interest figures for the end of December were released after the close yesterday, and as one might expect given the rally in equities, negative bets on individual stocks continued their post-election decline.  The table below lists the 20 stocks in the S&P 1500 that have 30% or more of their free-floating shares sold short, and for each stock we also include how they have fared so far in 2017.  Even though equities have rallied so far this year, the most heavily shorted stocks haven’t taken part in the rally.  The average return of the 20 stocks listed is a decline of 1.47% (median: -1.08%).  In terms of breadth, it’s a more even split with nine stocks up and eleven down, but still skewed negative.

You won’t find a lot of household names on the list.  Many people will recognize companies like LendingTree (TREE), Restoration Hardware (RH), Lumber Liquidators (LL), Tempur Sealy (TPX), and Big Lots (BIG), but most of the others are all obscure small cap companies.  In terms of individual returns, though, there haven’t been too many outliers.  The biggest downside losers have been Eagle Pharma (EGRX) and World Acceptance (WRLD), while the biggest winner has been Greenbrier (GBX).  As we said at the top, though, normally in a rising market environment you tend to see the most heavily shorted stocks do best.  Therefore, if this trend of underperformance continues, it would be a cause for concern for the broad market.

Interested in a more in-depth analysis of short interest trends?  Earlier today, we published our bi-monthly short interest report, which is available to all Bespoke Premium and Institutional clients.   Click here to start a no-obligation 14-day free trial now.

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The S&P 500 is currently down 0.80% as we approach mid-day.  Could this be the day that we finally see a 1%+ decline?  The last time the S&P 500 fell more than 1% was back on October 11th when the index dropped 1.24%.  The current 64-trading day streak without a 1%+ decline is the second longest of the current bull market which began in March 2009.  The longest such streak of the bull market lasted 66 trading days from April through July of 2014.  Going all the way back to 1928 when the S&P 500 began, there have only been 29 longer streaks without a 1%+ decline than the current one.  When we finally do get another 1%+ decline (maybe today), we’ll be sure to provide clients with a look at how the market has historically performed in the days and weeks following the day that the streak is broken.

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The streak goes on.  Despite new all-time highs in the major equity benchmarks and the DJIA getting within half a point of 20,000, individual investors still can’t get to a majority in the bullish camp.  According to this week’s survey from AAII, bullish sentiment dropped by about two and a half points in the latest week, falling from 46.20% down to 43.64%.  That’s actually the lowest level since early December and shows that just like the overall consolidation we have seen in the market in the last several weeks, sentiment has also taken a breather.  For the sake of reference, if bullish sentiment goes another five weeks without reaching 50%, it will be the longest streak of sub-50% readings in the history of the survey.

Although bulls aren’t in the majority, they do have a clear plurality.  As shown in the charts below, bearish sentiment remains relatively low at 26.97%, while neutral sentiment is still under 30%.  We would also note that this is a big change from the first half of 2016, when neutral sentiment was the leader with weekly readings routinely above 40%.

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Below is a chart included in our weekly Sector Snapshot sent to Bespoke subscribers.  It’s a breadth measure that shows the percentage of stocks in the S&P 500 that are trading above their 50-day moving averages.  As shown, 74% of the S&P’s current members are now above their 50-days.  That’s down slightly from a reading of 77% hit a few days ago, but as you can see, even though the S&P hit new all-time highs recently, this breadth measure didn’t reach a new high along with it.  Even still, 74% is a very healthy reading and not one we’d be concerned about.  If the S&P remains where it is and this measure starts to dip into the 50s and low-60s, it would be a negative divergence suggestive of lower prices.

Below is a look at the percentage of stocks within each sector trading above their 50-day moving averages.  Outside of Telecom (which only has a handful of stocks), the Financial sector currently has the strongest breadth reading at 90%.  Technology — a sector that struggled initially after the election — ranks second at 85%, followed by Materials at 84%.  Health Care breadth has also spiked quite significantly since the start of the year.  One sector that has seen breadth dip recently is Energy.  While Energy ran up right along with Financials in the weeks after the election, we’ve seen the two sectors diverge recently as oil prices have dipped.  Right now 58% of Energy sector stocks are above their 50-days (versus 90% for Financials).

See these breadth charts weekly in our Sector Snapshot report.  Choose either Bespoke Premium or Bespoke Institutional for immediate access.