Bloomberg- Hedge funds are short-selling Standard & Poor’s 500 Index futures by the most in three years, giving investors an opportunity to buy the securities before the funds have to settletheir debts, a Merrill Lynch & Co. analyst said.

“Large speculators” had the biggest net short-interest positions on the contracts in the week through July 3 since mid- 2004, Mary Ann Bartels, Merrill’s chief market analyst, wrote in a report to clients today. The bets, which speculate that the index is going to fall, require about $45 billion to buy back the securities for reimbursement and return to a previous “long” position, Merrill estimated.

Short positions have reached “crowded levels” and “we view this as a contrary indicator and readings continue to be bullish for stocks,” Bartels wrote in the weekly Hedge Fund Monitor report. “Short levels provide a floor on price.” Merrill, the world’s biggest brokerage, used data provided by the Commodity Futures Trading Commission’s weekly Commitments of Traders report.

In a short sale, investors borrow securities to sell on the expectation they will be able to repurchase them for less.

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