Will the last short seller please turn out the lights?
According to S3 Analytics, Bets against the SPDR S&P 500 (SPY), the largest ETF tracking the broad index, fell to $38.9Bn last week, the lowest level of short interest since May, 2013. The same thing is going on in hedge funds as we’re well below 2013 levels in short funds – people have simply given up on the idea that this market is going to go down – and that’s probably the best time to short it!
In our Portfolio Reviews this week, we have been pressing our hedges by using about 1/4 of the money we have made on our longs, simply trying to lock in our gains as we certainly don’t expect the market to make 4-7% every month – that would be silly, right? These days, you have to wonder as the S&P is up 25% from the mid-point (not the lows) of 2015 and early 2016 (2,000) yet, as I noted in yesterday’s Live Trading Webinar (Members Only) the earnings of the components of the S&P are not matching those gains at all:
Apple (AAPL) is the top component of the S&P. With an almost $800Bn market cap, it makes up 3.7% of the index. In 2015 they had $233Bn in sales and made $53Bn, last year they had $215Bn in sales and made $45Bn and this year they are looking for $220Bn in sales and $46Bn in profit yet AAPL is trading 60 points higher (66.6%) than it was at the beginning of last year (after 2015 earnings were reported). What has AAPL actually done to justify a 66% gain? Mostly, it was drastically undervalued but, other than that – it has added no profits to the overall S&P. In fact, it has subtracted them!
AAPL is also the largest Dow component and $1 in share price is 8.5 Dow points (yes, it’s an idiotic system). So AAPL alone is responsible for 510 points (12.5%) out of the Dow’s 4,100 point run from 17,500 (23%). Now I love AAPL, it was our Stock of the Year in 2013, 2014 and 2015 (this year it is WPM), so I’m fine with their value now, it was simply too cheap before. By the way, we make…