“Many short sellers have exited the play, as it is not a good strategy” — Paul Ebeling
The number of US companies with short (Bearish) bets equating to at least 30% of their shares has shrunk to 18 from 43, according to data from Barclays Plc. The drop was more pronounced in dollar terms, an 80% dive to $5-B.
Part of it may be that the direction of the market remains North, but it is hard not to see the pullback as a direct reaction to the success of meme-stock raiders aiming their crowd-sourced campaigns directly at bear-trader favorites.
We note growing fear over getting squeezed by the retail-driven rally in smaller firms. Some have shifted their short book to ETFs and big companies.
The action among day traders on Reddit’s WallStreetBets forum to band together and take on professional short sellers has forged ahead this week, with ContextLogic Inc. and Wendy’s Co. becoming the latest targets.
The war started with GameStop Corp. in January, and at that time, it forced hedge funds to take money from the market at one of the fastest rates on record.
But bearish positions have since fallen dramatically, indicating a low risk of spillover, according to Barclays strategists led by Maneesh Deshpande.
This time, hedge funds appear to be in no rush to buy back shares and cover their shorts.
Last Wednesday when the Top 10 most-shorted stocks handed $4.5-B in unrealized losses to Bears, short covering among hedge funds was less than 20% the pace seen in late January, according to prime-broker data compiled by Goldman Sachs.
“The current short squeeze is more localized probably because the number of stocks with high short-interest has come down dramatically,” Goldie wrote in a note to clients. “Given the low risk of a broad contagion, we view the fallout of the recent short squeeze to be limited.”
By Barclays’s tally, short sales across the board amounted to $900-B, or 1.9% of the total market value of American equities, a sign that short sellers have not extended themselves. While the overall pool of Bearish bets has stayed roughly the same as January, those heavily shorted have fallen to less than 1% of the total from 2.8%.
“Everybody talks about whatever you do, don’t short any of these meme stocks,” said the chief market strategist for Miller Tabak + Co. said in a TV interview. “I totally agree because you can lose more than 100% of your money.”
Have a healthy day, Keep the Faith!