Sentiment Snapshot: Hedge Fund Shorting Surges As Retail Refuses To Buy The Dip

Heading into this week, which saw the S&P close up 0.7% on Monday near session highs with some of the most-shorted names such as CVNA up as much as double digits before fading modestly, sentiment was mixed at best, with Goldman reporting that on Friday its long only clients finished the week 9% better for sale, while HFs finished 1.7% better to buy, and as moves higher in mega cap tech felt like supply exhaustion (i.e., sellers running out of stock to sell) versus real demand.

Commenting on the recent move, Goldman’s prime brokerage said that it continues to see HFs (re)short pockets of lower quality (specifically non-profitable tech) and media names, with the pick up in selling reflected in last week’s Prime Brokerage stats, where the notional value of stock shorted over the week was the largest in nearly 6 months with short sales outpacing long buys (1.7 to 1), and ranks in the 93rd percentile vs. the past five years. Furthermore, as shown in the chart below, GS Prime notes that “hedge funds have been shorting US stocks at a rapid pace in recent weeks” something which culminated in the cumulative short flow in US equities which is now at its highest level YTD.