From ✅Phyrexx Ni Sen✅ latest updates

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US stock short positions are nearing historical highs, and risk appetite within the market has clearly fallen

According to S3 Partners data, the proportion of short positions as a share of float for Russell 3000 constituent stocks is already approaching 6%, and the S&P 500 has also risen to about 3.5%, with both figures near historical highs.

Many friends see that US stock short positions are rising higher and higher and their first reaction is that the market must be about to fall, but I don’t think it’s that simple.

As shorts increase, it can only mean that more and more capital doesn’t believe US stocks can keep rising, and it also means that many funds have already started preparing for a market decline in advance. But opening short positions doesn’t necessarily mean the market will fall—ultimately it still depends on the direction of the US macro environment, the economy, and monetary policy.

If the economic data continues to weaken and corporate earnings start to be revised down, and the Federal Reserve still has no room to ease, then yes, pressure on US stocks will keep getting bigger. But if the data doesn’t continue to deteriorate and US stocks also can’t keep falling, then the more shorts there are, the more they may end up becoming the capital that drives the rally.

Especially now that we’re already in the earnings season—starting today, earnings reports from heavyweight stocks will be released one after another. If the earnings data is very strong, AI-related business revenue continues to grow, cloud computing demand and management’s future guidance don’t weaken, then market concerns about corporate earnings will temporarily ease.

At this point, US stocks may not even need any big positive catalysts—so long as the market keeps from falling, shorts will start considering closing their positions.

Because short covering itself is buying. Shorting capital needs to buy back the stocks in order to close its positions. So the higher the short position, the larger the potential covering buy orders. Once the stock price rises and causes some shorts to cut losses, that covering will continue to push the stock price higher, and in the end it may form a fairly obvious short squeeze.

But conversely, if the earnings reports from heavyweight stocks miss expectations, or if AI spending continues to increase while the pace of realization of related revenue and profits can’t keep up, then these shorts may have been early to get the direction right—and the decline in US stocks could also be further accelerated by earnings season.

So this earnings season will not only determine whether corporate earnings can support the current valuations, but may also determine whether these shorts near historical highs ultimately keep making money—or are forced to become fuel for US stock gains.

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