2 ETFs You Can Use to Trade a Dangerous Market as S&P 500 Short Interest Reaches Decade Highs

2 ETFs You Can Use to Trade a Dangerous Market as S&P 500 Short Interest Reaches Decade Highs

Rob Isbitts

Mon, September 7, 2026 at 5:00 PM GMT+3 3 min read

• ^GSPC -0.58%

Maybe they really do ring a bell at the top of the market. That's what I thought when reading that short interest in the median S&P 500 Index ($SPX) stock has surged to levels not seen in a decade. Specifically, short interest for the median S&P 500 constituent has climbed to 3.2% of market capitalization.

Furthermore, the most heavily shorted names (90th percentile) have seen short interest spike to 8% of market cap. Now, these readings remain below the historical peaks reached during the 2008-2009 Global Financial Crisis. But they are a sharp reversal from the suppressed short positioning that characterized the post-pandemic era.

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My take on this data is that this level of single-stock bearish positioning is the same type of vibe I get from running through hundreds of stock and ETF charts each week. This is a market I refer to as being very "heavy." That doesn't mean it can't lift itself up, but it won't be easy.

This recent data from Barchart indicates that the very biggest stocks are not heavily shorted just yet. But that only adds fuel to the argument that for now, these are the names holding the entire market up.

I took it a step further, and screened that same list to show only stocks with at least a 20% increase in short interest. That produced a few high-profile stocks, including recently listed SK hynix (SKHY) and Sandisk (SNDK).

We know it, we acknowledge it, and we see it happening: The performance of broad index benchmarks like the SPDR S&P 500 ETF (SPY) has been heavily carried by a tight cluster of mega-cap technology and hardware leaders. Beneath that surface layer, the average S&P 500 Index member is grappling with sticky input costs, softening consumer demand, and margin friction.

And, with 10-year Treasury yields anchored at elevated levels and 30-year yields pushing near multi-year highs, major institutional trading desks are actively shorting companies with high debt loads or weak free cash flow profiles that face expensive refinancing hurdles. And below the S&P 500 cap level, as I've noted here many times, the Russell 2000 Index (IWM) is filled with very shortable stocks.

Still, elevated short interest is a double-edged sword for traders and investors. While rising short positions demonstrate a real fundamental concern, they simultaneously create a coiling spring for sudden, violent upside rallies.

Surging short interest tells me that the assumption market-wide has changed. The belief that a rising market tide will lift all ships. However, trading alongside heavily shortened names takes a lot of discipline.

Short interest is but one of many factors to consider. To me, the overriding one when it comes to making decisions is the price chart itself. And when trying to assess the condition of the S&P 500's average stock, my go-to ETF is the Invesco S&P 500 Equal Weight ETF (RSP). I charted it above, and it has a message.

This chart is rolling over. And it had better stop soon, or it could get a lot worse. This is the alleged market savior, the idea that the non-mega-cap set would rally to save the index when the Magnificent 7 era finally closes.

I do not see anything in RSP's chart that makes me think this is the case currently. In fact, the 20-day moving average has rolled over, and the percentage price oscillator (PPO) is close to going negative. That's a sign of increasing risk, not the making of a stock market rescue plan.

Shorting individual stocks can be treacherous. But for those seeking to pile on a potential downturn, one that strikes hard at the average stock, there's the ProShares Short S&P 500 ETF (SH). SH tracks the S&P 500 inversely. There's also the ProShares Short Dow30 ETF (DOG), which inversely tracks the Dow Jones Industrial Average.

Rob Isbitts is a semi-retired CIO, former fiduciary investment advisor, and Barchart columnist. Check out his other work at ETFYourself.com (featuring the Fresh Charts weekly trading post), and ROAR.PiTrade.com, helping investors to better-manage their own portfolios.

On the date of publication, Rob Isbitts did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. This article was originally published on Barchart.com