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Do Bull Markets End with Short Interest Making New Highs?

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Ryan Detrick is the Senior Technical Strategist at Schaeffer's Investment Research. He has the uncanny ability to connect the dots in a market that seldom makes sense.

So we’re up a lot and lot’s of people are bullish.  This is a fact.  Still, I think there are signs this bull market is far from over and very well can continue well into the first-quarter of next year, until we finally get a meaningful pullback.

One of our favorite indicators to measure potential buying pressure is short interest.  A lot of shorts represents potential buying pressure, as those bearish shorts will be forced to buy back their bearish bets in a bull market.  Well, check out the overall short interest on SPX components.

It is up near the highest it has been since June 2012.  That sparked a major low in the SPX and a huge rally, probably fueled in part by the shorts covering.  Now we are back up there.  This is a good sign for the bulls.

Turning to the QQQ, it has had a huge year – up more than 30%.  Well, short interest on QQQ components was up 2.3% last period and is actually at it’s highest point since August 2009!  That is a huge pile of firewood for a big fire, we just need the match.