The S&P 500 has pushed through its previous high, and attention is now shifting to the Nasdaq 100, which still has not done the same. Bloomberg macro strategist Simon White said short positions remain substantial in the Nasdaq complex, and if stop-losses start getting hit, that unwind could become the next force driving the index toward a fresh high.
The S&P 500 rallied sharply in back-to-back sessions this week, gaining 1.5% on Monday and 1.8% in the following trading session. That move carried the index above its earlier high. According to the report, the speed and concentration of the advance point to classic short covering, with bearish positions built near record levels being forced out as prices rose. Goldman Sachs’ most-shorted basket climbed 13% over the past four trading days, which was cited as evidence supporting that reading.
Short covering appears to have powered the S&P 500 breakout
White’s framework looks for a specific mix of signals that tends to indicate forced covering by shorts: a one-day gain greater than 1.5 standard deviations of the prior month’s average daily move, a clear drop in futures open interest, and the index itself reaching an eight-week high. Those conditions have already been triggered in the S&P 500, he said.
Historical data going back to 1998 show that once this signal appears, average returns over the following month are higher than the broader average. Over longer windows of three, six and 12 months, though, returns come in slightly below historical averages. In other words, the lift from short covering has been clearer in the near term, but it has not consistently marked the start of a lasting trend.
Nasdaq shorts remain heavier than in the S&P 500 and Russell 2000
The Nasdaq 100 has not yet broken above its record high, and that leaves more unfinished room for bearish positions to be unwound.
Bloomberg data show that short interest in the QQQ ETF was still elevated in the latest figures from roughly 10 to 14 days ago, while comparable short-interest ratios for ETFs tracking the S&P 500 and Russell 2000 had already moved lower. Looking at Nasdaq futures open interest through the same lens, White said the index saw a milder short-covering impulse than the S&P 500 in the latest session, suggesting a broader flush of bearish positioning may still be ahead.
Software stocks stand out as a key area to watch
Software has emerged as a notable case. The report said the sector’s median short-interest ratio has jumped recently as coding agents became a rising theme and software shares attracted thematic short selling. Because many of those positions were opened later, their stop-loss levels may not yet have been reached by the current rally.
Underinvested buyers could add another layer of demand
White also said short covering may not be the only source of support. As the S&P 500 moves above its previous high, investors who had been underweight may begin chasing the rally, adding a fresh layer of buying to the rebound.
He also issued a clear warning. Inflation risks and pressure from higher real rates have not gone away, and the present advance could still turn into a bull trap. That leaves the macro backdrop as a key point of caution even as equities keep pushing higher.