Recent analysis of global ETF short positions reveals a mix of momentum and reversal strategies across regions. North America follows momentum, while Mexico and Europe lean towards reversal. Bonds and commodities show mixed patterns, with long-term bonds and USO following momentum, while medium-term bonds and VXX exhibit reversal. No clear pattern emerges for China or global ETFs.

We examined the global flow of funds during the recent US sell-off, analyzing equities, currencies, bonds, and commodities.

In some instances, clear patterns emerge, while in others, they do not.

When stock positions and short interest move in the same direction, it is considered a reversal pattern — shorting during an upward move and covering during a downward move.

Conversely, when stock positions and short interest move in opposite directions, it represents momentum — shorting during a downward move and covering during an upward move.

Regional Observations:

North America: Stocks and currencies are down, while short positions are up, indicating a momentum strategy.

Mexico: Both the index and short positions are higher, indicating a reversal strategy.

Europe: Stock prices are up, and short interest is up as well, indicating shorting during an upward trend. Meanwhile, in currencies, ETFs are up, and short interest is down, reflecting a bullish momentum strategy — the opposite of a bearish dollar.

UK: Stock prices are flat, but short interest is higher, with no clear pattern. Like the Euro, the British currency is up with a smaller short position.

Japan: Both stock prices and short positions are unchanged, showing no clear pattern. The currency is up, like Europe, but short positions follow a reversal strategy.

China (H-shares): Stock prices and short positions are flat, showing no pattern. In Hong Kong shares, both stock prices and short positions are up, indicating a reversal pattern.

Global ETFs: There is no consistent pattern for EFA and EEM, as both are flat.

Bonds:

Long-term bonds: Prices are down, and short positions are also down, indicating a reversal pattern.

Medium-term bonds: Prices are up, and short positions are also up, indicating a reversal pattern. Overall, the yield curve has steepened but is expected to flatten.

Commodities:

USO: Stock prices are down, and short positions are up, suggesting a momentum strategy.

Gold: Prices are up, but no clear pattern is observed.

VXX: Prices are up with short interest higher, indicating a reversal strategy.

Summary:

Global equities and currencies are up, except for North America, which is down.

Half of the ETFs follow momentum strategies, while the other half follow reversal strategies.

Some ETFs exhibit no clear pattern.

Short interest trends highlight key shifts in global markets, with half of ETFs following momentum strategies and the other half showing reversal patterns. Equities and currencies are up, except in North America. Bond yields have steepened but are expected to flatten. These dynamics underscore the complexity of market positioning across asset classes.

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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.