S3 data highlights clear support and resistance levels in short interest (SI) for major ETFs SPY and QQQ. These levels often serve as reliable indicators of potential market reversals.

Analyzing short interest trends on some very notable ETFs displays clear technical support and resistance levels.

When SI falls, it often falls to a technical level (of support).

When SI increases, it often rises to a technical level (of resistance).

When SI rises to a key resistance level, it often signals bearish sentiment = sell.

When SI trends towards a key support level, it often signals bullish sentiment = buy.

SPY

Short interest support level (blue) is 90MM shares and resistance level (red) is 110MM shares, looking back 1Y.

As you can clearly see, when SI peaks there is a subsequent decrease in SPY price performance.

Also note the quick pullback into the zone after the breakout from resistance in Dec.

The recent uptick in SI off its support level in Feb and reversing back to resistance, is a bearish signal.

QQQ

Short interest support level is 43MM shares and the resistance level is 53MM shares, looking back over past 1Y.

Note the negative correlation between SI and Price, with peaks in SI corresponding with troughs in Price.

With SI trending closer to the resistance level in Feb, the signal predicted the subsequent drop in shares.

If SI breaks out above the resistance level and continues the upward trend, this could be confirmation for further price declines.

Understanding short interest levels can provide early warning signals for price action. As SPY and QQQ SI approach resistance, historical trends suggest potential downward pressure on prices. Portfolio managers and risk professionals can use these insights to make better-informed investment decisions.

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The information herein (some of which has been obtained from third party sources without verification) is believed by S3 Partners, LLC (“S3 Partners”) to be reliable and accurate. Neither S3 Partners nor any of its affiliates makes any representation as to the accuracy or completeness of the information herein or accepts liability arising from its use. Prior to making any decisions based on the information herein, you should determine, without reliance upon S3 Partners, the economic risks, and merits, as well as the legal, tax, accounting, and investment consequences, of such decisions.