Why High Short Selling Is Surprisingly Bullish for the Stock Market Now
Investors' bearish sentiment is on the rise, with high levels of short selling in ProShares 2X short funds indicating expectations of a market decline. Despite this, market prices have not corrected significantly, leaving analysts puzzled.
Historically, high short selling has been a bullish signal for the stock market. The current situation is no different. Institutional investors, particularly hedge funds and large wealth managers in the US, have been driving these high purchase activities in October and November 2025. Interestingly, these levels mirror those seen at the April low before the subsequent 40% rally.
Analysts suggest that any correction will be mild, likely ranging from 5% to 7%, and higher prices are expected to follow. They believe the long-awaited correction will begin from a higher price level and will not be a 'bubble bursting' event. However, the stock market has not yet shown signs of decline, which is unusual given the high levels of short selling.
The market's resilience despite high short selling is unexpected. While investors position for a decline, the stock market continues to rise. This dynamic suggests that any correction, when it comes, is likely to be mild and followed by further gains. The stock market appears headed higher, with high short selling serving as a bullish indicator rather than a harbinger of a significant decline.
