War-related rising jet fuel costs and flight cancellations are causing a steep descent in global airline stock prices, underperforming the broader market.

The JETS ETF and individual stocks are seeing a surge in bearish bets, with median short interest rising 25% as shorts position further downside in almost all names.

Squeeze Risk: While most names aren't "crowded," Wizz Air has hit a critical red line with high short interest, making it the primary candidate for a potential reversal.

With the onset of the Iran war, global airlines have suffered in multiple ways; the sector is down 13%, with a universal decline across all continents. The JETS ETF is exhibiting higher shorting momentum on the way down.

Because ETF utilization actually overstates the short interest in the underlying names due to multiple shorting layers, we will examine individual equity stock data for a clearer view of short selling sentiment.

Primarily, with jet fuel prices doubling, these rising input costs will materially harm earnings. Second, with flights cancelled due to geopolitical conflict or fuel shortages, overall capacity has significantly contracted.

Real-time short interest in almost all sector names is trending higher. The median short interest is 25% higher, representing an average increase of 2 percentage points. Notably, certain names have seen a percentage increase in the triple digits.

The increase in short interest for both the ETF and constituent names shows that investors expect continued price decreases, which may be part of a broader long-short strategy.

Shorting on the way down is a momentum strategy, gaining exposure to lower prices.

Most stocks are not crowded, maintaining an average S3 Crowded score of around 30; in general, this does not indicate a sector-wide short squeeze risk.

The only airline crowded is Wizz Air, the European discount carrier which was heavily crowded even before the war. The short interest % of float for this low-cost airline is 26% and has climbed since the start of the war, elevating the short squeeze risk significantly.

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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.