Short bets on the stock market may be bottoming out as indexes hit record highs

• Short interest in the S&P 500 sank to 2.28% at the end of February.
• Short-sellers may have been rattled by retail traders targeting high short-interest names.
• The Dow and S&P 500 both hit record highs this week after the COVID-19 relief bill passed.

Short bets on the stock market may be bottoming out as indexes hit record highs, according to data from S&P Global Market Intelligence.

Both the Dow and the S&P 500 charged to record highs this week after Congress and the Biden administration were able to pass the $1.9 trillion COVID-19 relief bill.

Short interest in the S&P 500 fell to 2.28% at the end of February, down 112 basis points from the end of 2020 when it averaged 3.4%.

Short-sellers may have been rattled by retail traders targeting high short interest stocks in an attempt to force a short squeeze.

SkyBridge Co-Chief Investment Officer Troy Gayeski said the recent retail trader phenomenon has institutional investors doing a 'triple check' on short exposure.

Perhaps as a result, GameStop and other so-called meme stocks have seen their short interest ratios plummet in the past few weeks.

The number of GameStop shares sold short fell to just 15.77% of its float as of March 17, according to data from Ihor Dusaniwsky of S3 Partners. The video game retailer famously held a short interest of over 100% back in January.

Matt Weller, the global head of market research at GAIN Capital, told S&P Global that he doesn't expect short interest to rise back to "pre-GameStop levels."

"After more than a decade of bleeding value, capped off by a series of spectacular short squeezes earlier this year, shorts are likely to err on the conservative side until they see the strategy start working again," Weller added.