I have read and heard a ton the past two weeks about the “massive short squeeze” underway. Nothing could be further from the truth. There is VERY little pressure on the shorts. There is a TON of pressure on the longs.
How so? The S&P 500 is lower by -5.58% year to date. The Russell 2000 is lower by -10.02%. According to hedgeindex.com, here is the style breakout by the hedgies through the end of January with February numbers due in the next couple of days:
Dedicated Short Bias 9.48%
Equity Market Neutral -1.17%
Long/Short Equity -2.78%
Long only funds will have returns between the S&P 500 and the Russell 2000.
For the month of February, the S&P 500 is -0.54% and the Russell 2000 is -1.28%. So the long only managers continue to bleed while the Dedicated Short Bias should see returns above 11% based on the numbers we have detailed.
Through the end of January 1,777 stocks were up or flat for the year and 4,954 were lower. So 74% of stocks were lower for the year. 1,985 had lost -10% or more so of those down 40% lost more than -10%. That means shorting is like shooting fish in a barrel.
This means if you are not a good stock picker, then likely you are underperforming the indexes.
Since the beginning of the year the average short squeeze stock, defined by Phil Erlanger who I work with day to day, has lost -14.84% meanwhile the average stock that is heavily short and the shorts have gotten correct has fallen by -14.44% which means folks that the shorts are minting money compared to what the longs are doing.
In fact, the -14.44% number comes after last week’s up week that saw those heavily short and the shorts have gotten correct rise by 5.39%. So before last week, the shorts were up almost 20%. Now they are up 15% and many longs are down that much.
That my friends does not make for a short squeeze. The shorts are living large right now.
More on this tomorrow when we parse through the latest short interest data.
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