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Data: S3 Partners; Chart: Axios Visuals

With the stock market again rising toward record highs, short sellers are moving back into technology shares and broad U.S. indexes with increasing confidence, betting that prices will fall and they will profit.

What's happening: After largely cashing out their bets at the end of the first quarter following the market crash in late March and pulling back in July and August, the renewed rise in stock prices has bears upping their bets again.

The backdrop: Stock market bulls, who believe prices will continue to rise, had been celebrating the apparent disappearance of short sellers in the third quarter, which is normally a sign that stock prices are set to increase.

  • However, that's not exactly what's happened, says Ihor Dusaniwsky, managing director of Predictive Analytics at S3 Partners.
  • "There may be less shares shorted in the market, but the overall value of short exposure in the market has remained relatively stable," he said in a recent note to clients.
  • Further, Dusaniwsky tells Axios, "short selling has been increasing across the board recently."

By the numbers: Between Oct. 1 and 15, short sellers added just over $80 billion in short interest on bets against the big four U.S. stock indexes — the Dow 30, S&P 500, Nasdaq 100 and Russell 3000, S3's data show.

  • Since the start of Q2, short sellers have added nearly $368 billion of short bets on the four indexes.

Why it matters: Short sellers have a long track record of correctly predicting the direction of the market over a 12-month horizon, according to Matthew Ringgenberg, a finance professor at the University of Utah.

  • In fact, he says his short-sale index, which measures the number of shares shorted in a given period compared to the overall trend, “is arguably the strongest known predictor of aggregate stock returns” for the next 12 months, in a recent article for Barron's.

Yes, but: Short sellers' accuracy has only proven itself over a 12-month period, Ringgenberg says. His index was significantly higher in June than it is now.

What it means: Short sellers are investors who rent stock to sell it on the open market, betting that it will fall and they can purchase it at a lower price and pocket the difference.

Go deeper

Dion Rabouin, author of Markets
Jan 21, 2021 - Economy & Business

Short seller calls out hydrogen fuel company Plug Power

Data: Investing.com; Chart: Axios Visuals

Plug Power's share price fell 6% on Thursday and slipped another 1% in after-hours trading following a Hindenburg Research-esque short seller report on the company from Kerrisdale Capital.

What they're saying: "We are short shares of Plug Power, a $40 billion provider of hydrogen fuel-cell solutions that’s set to generate a paltry $300 million in revenue in 2020 and trades at 40x its own aggressive revenue projection for 2024."

Dion Rabouin, author of Markets
6 mins ago - Economy & Business

The digital dollar is now high priority for the Fed

Illustration: Aïda Amer/Axios

The U.S. is starting to get serious about a central-bank-backed digital currency, with recent comments from top officials laying out the strongest support yet.

Driving the news: On Tuesday Fed chair Jerome Powell told Congress that developing a digital dollar is a "high priority project for us," but added that there are "significant technical and policy questions."

Dan Primack, author of Pro Rata
1 hour ago - Economy & Business

Coinbase files to go public

Illustration: Eniola Odetunde/Axios

Cryptocurrency exchange Coinbase on Thursday filed to go public via a $1 billion direct listing.

Why it matters: This comes in the midst of a crypto boom, and the listing may further legitimize the industry.

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