Don't be fooled by the flimsy rebound in stocks

Trader on the floor of the New York Stock Exchange.
Brendan McDermid | Reuters
Trader on the floor of the New York Stock Exchange.

The bounce in both oil futures and stocks, which started with an abrupt intraday reversal a week ago, has many on Wall Street calling it a short-term bottom. But deeper market analysis shows the rebound was driven mostly by short covering, and could indicate the rally will lose steam due to lack of true buying interest.

The average stock in the S&P 500 had a short position of 3.43 percent Wednesday, surpassing the 2011 peak of 3.19 percent and hitting highs not seen since March 2010, according to Markit. With stocks moving in lockstep with oil, it is no surprise that crude futures also have an all-time high net short position.

Energy stocks have the greatest amount of money bet against them, as short interest increased across all 10 S&P 500 sectors, Bespoke Investment Group said Thursday. GameStop, Chesapeake and Transocean have the greatest percentage of short interest among individual stocks, the data showed, while utilities and financials had the lowest level of shorts.

Expectations are that the level of short interest could soon rise to new records, a negative sign for the market, traders said.

  • Patti Domm

    Patti Domm is CNBC Markets Editor, responsible for news coverage of the markets and economy.

  • Bob Pisani

    A CNBC reporter since 1990, Bob Pisani covers Wall Street from the floor of the New York Stock Exchange.

  • Senior Producer - Breaking News

  • Dominic Chu

    Dominic Chu is a markets reporter for CNBC.

  • Evelyn Cheng CNBC

    Evelyn Cheng is a Beijing correspondent for CNBC.

  • Sara Eisen

    Sara Eisen is co-anchor of the 10AM ET hour of CNBC's "Squawk on the Street" (M-F, 9AM-11AM ET), and named co-anchor of CNBC's "Power Lunch" (M-F, 1PM-3PM ET).

Market Strategist Survey