Everybody is piling into this one trade

Wall Street is betting big against energy companies.

In a post on Wednesday, Bespoke Investment Group highlighted this chart, showing the short interest among stocks in the energy sector of the S&P 500.

Short interest indicates the per cent of shares outstanding that are currently being borrowed by short sellers who believe the price of the stock will go down.

Bespoke notes that, “As of the end of January, the average stock in the Energy sector had 9.88% of its floating shares sold short … this is the highest level of short interest for the sector since at least 2008.”

These bets against energy come as the price of oil has tumbled more than 50% over the last several months and a number of oil and gas companies have cut workers as a result of the decline in oil prices.

In an afternoon email on Wednesday, NYSE floor governor Rich Barry wrote, “By the way, according to our contacts on the Street, there is an inordinate amount of ‘Street Buzz’ going around that there is so much short selling in energy stocks being done by hedge funds that some stocks are becoming hard to borrow (!). It is a hugely crowded trade at the moment.”

In its post on Wednesday, Bespoke noted that if oil prices stabilise or rise, there could be a rush to get out the door.

As Barry said, a hugely crowded trade.

On Wednesday, West Texas Intermediate crude oil prices were down about 2% to $US49 a barrel.

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