Extreme pessimism is becoming the norm on Wall Street.
According to Ned Davis Research, at the end of May around 10% of the total shares outstanding of all domestically traded ETFs were short 2-billion shares. This is the highest level of shares shorted since 2007.
While shorts are stacking up, Ned Davis' Neil Leeson and Johnson Research's Chris Johnson believe opportunities are created.
Neil Leeson, ETF Strategist at Ned Davis Research:
- Investment Play: Overweight the information technology sector and the semiconductor sub-industries.
- The Semi HOLDRS Trust = 214% of shares SHORT, high date 5/31/11. The semiconductor funds have over 100% of their shares lent out. This is due to the unique creation/ redemption process that exchange-traded products enjoy. Not only can authorized participants create shares for liquidity purposes, they can create shares to sell short as well.