Short sales create credit balances. The green line shows the astronomical amount of money that is short this market. The bull leg that began last summer has been the longest and most persistant short squeeze in history. Yet, more and more stock is pilling on the short side.
Is this phenomenon bullish or bearish? The answer is both. Short term, the shorts end up getting squeezed and beat up pretty bad. The same thing happened as the top approached in 2000. Short sellers end up unwittinly prolonging a bull market even as its foundation becomes more and more flimsy.
Eventually motivations to liquidate elevate to such a high level that no amount of short covering can keep the market from falling. Heavy short selling adds additional false value to a market that is already over priced. The end result is a bear market that is more severe than it would have been without the heavy shorting.
Why a bear market? More economists need to understand the natural laws that are explained in ancient books of wisdom. Why do recessions occur? Why are there business cycles and bear markets?
In an economic boom, too many begin to reap where they have not sowed.
James
