A BRIEF HISTORY OF SHORTS, CORRECTIONS AND WHAT CAME NEXT

With the S&P 500 SPX confirming a correction last Thursday, S3 Partners looked to short selling history around corrections for clues as to what might follow that much-watched 10% drop from the record.

For example, in 2023 the investors were shorting on the way down to the correction, which actually preceded a rebound, according to the data analytics company.

But in 2022, short positioning was much lower as investors bought on the way down. This led to a prolonged downturn.

So their conclusion is that short positioning plays a key role in post-correction market behavior.

"When investors aggressively short on the way down, rebounds tend to follow," they write but then add that "lower short interest often correlates with extended downturns."

But still, according to S3: "Historical data suggests that short-term reactions to corrections are neutral, but over a quarter, markets tend to recover."

(Sinéad Carew)

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