Watch this on the S&P 500 for a signal on when to get defensive, Wells Fargo Securities' Chris Harvey says (via TradingNation)
Harvey is watching one contrarian indicator for signs the stock market recovery rally could be beginning to turn.
"We have seen short interest come down and down dramatically as the market has rallied. That's a positive sign near term. It tells us that people are much more constructive. There's a lot of bearishness that's been rinsed or washed out of the marketplace. However, it also tells us there's significant scope for that short interest to go up," said Harvey.
Short interest on the S&P 500 as a percentage of float was at 3.1% last week, according to Wells Fargo Securities data. That was down from 3.3% in mid-July. Short interest was especially low in utilities, health care and financials. "Typically, some of the worst sell offs we've seen is when short interest rises from very low levels, which is where it is. It's not a catalyst by itself, but it's a concern, it's a concern as we see the market melting up," said Harvey.
Wells Fargo Securities has a price target on the S&P 500 of 3388. Harvey says the index could hit that level before pulling back as election risks get priced in heading into November.
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