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Sometimes the best trades come from reading the crowd wrong — and I mean completely wrong. I showed everyone a chart a few weeks back highlighting S&P 500 (SPY) short interest, which had just hit five-year highs.
Now, I pulled that chart from a fear post basically screaming “watch out down below, hedge funds are short, SPY’s about to crater.”
But here’s the thing — I told you guys I didn’t think that was going to be the case. Instead, I thought we were going to see more short squeezing on the S&P 500.
The Short Squeeze Playbook Unfolds Perfectly
And wouldn’t you know it — that’s exactly what happened. September and October so far have delivered record amounts of short covering. I’m talking about shorts buying back SPY positions to cover their bets at levels we haven’t seen before.
This wasn’t just some minor technical move. This was hedge funds being forced into becoming buyers when they initially positioned to profit from a decline.
That high amount of short interest I flagged? It turned into fuel for the very rally everyone thought was about to end.
Why Contrarian Thinking Wins in Extreme Positioning
Here’s what most people miss about short interest data — when positioning gets that extreme, it often creates its own momentum in the opposite direction.
Those shorts don’t just disappear. They have to cover, and covering means buying.
The market is still red-hot because of this dynamic. While everyone was positioning for a crash, it had a different plan. Sometimes the best signal isn’t what the crowd expects to happen — it’s understanding what they’ll be forced to do when and if they’re wrong.
This is exactly the kind of setup I look for when positioning gets stretched to extremes. The data told the story before it even played out.
Graham Lindman
Graham Lindman Trading
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*This is for informational and educational purposes only. There is inherent risk in trading, so trade at your own risk.
P.S. The Most Important Charts Every Trader Must Know This Q4… and Beyond
Did you miss my LIVE Sunday session?
I revealed the FIVE most important charts for October andalsogave away TEN very specific trades to take this month for FREE!
Luckily, you can catch the still replay and get in on the action…
