Thought here is that an increase in the short interest of SP500 could be a leading indicator whether a correction or recession is in the works. To normalize the data a bit, I looked at the current short volume vs. it’s 50 day smoothed moving average.
Since 2017, it looks like short interest is a good predictor, but it’s an imperfect leading indicator. For example, short interest isn’t at the peak until the lowest point of March 2020. This is also similar for 2019. However, for 2018, it peaked before the low point and even for May 2022, it’s starting to spike up as the price is decreasing.
I’ll continue to track the short interest closely. If the short interest of SP500 continues to increase, we might have a correction in the works.