Tom Lee Sees Russell 2000 as a 'Coiled Spring' With Shorts at 99.8th Percentile

Tom Lee, chairman of Bitmine Immersion Technologies, says U.S. small-cap stocks are significantly undervalued. In an October note from Fundstrat, his independent research firm, Lee frames the Russell 2000 ETF as a “coiled spring,” with short positioning in the small-cap benchmark sitting at the 99.8th percentile.

Lee chairs Bitmine Immersion Technologies, a company that controls 4.9% of all Ether, with holdings above 6 million ETH. While that role has made him one of the most prominent figures in corporate Ethereum accumulation, his equity research at Fundstrat focuses on traditional markets, where the Russell 2000 serves as a leading gauge of the U.S. small-cap segmentn
The Russell 2000 Index tracks approximately 2,000 small-capitalization U.S. companies and is widely regarded as the benchmark for American small-cap equities. It is maintained by index provider FTSE Russell. The iShares Russell 2000 ETF (IWM), the largest fund tracking the index, is among the most heavily traded ETFs in the U.S. market. Because smaller companies generally carry lower market capitalizations and thinner trading liquidity than their large-cap peers, positioning shifts across the index tend to draw attention from participants tracking sentiment toward that corner of the U.S. market.

A short-interest reading at the 99.8th percentile means bearish bets against the index are more elevated than at virtually any other point in its recorded history. Percentile measures of this kind place current positioning within its historical distribution, meaning the present level has been exceeded only 0.2% of the time. Short positions involve borrowed shares sold in anticipation of lower prices, and they must ultimately be closed through purchases — one reason crowded short positioning is frequently weighed in market analysis as a gauge of how one-sided sentiment has become. It is this extreme level of positioning that Lee's note characterizes as a “coiled spring.” Short interest data for U.S. equities and ETFs is published on a recurring schedule, so readings like this one can be tracked as new figures are released.

Fundstrat is a New York-based independent research firm co-founded by Lee, who previously served as chief equity strategist at JPMorgan.

This content was first published on COINOTAG.