2020 was a tough year for short sellers
GameStop’s actions have been unstoppable since the addition of a new board member, activist investor and Chewy co-founder, Ryan Cohen. Cohen has a solid reputation, but the real reason for the steep climb is a manual short press, say the experts. As the stock rose amid the euphoria fueled by retail investors, short sellers facing mounting losses and high borrowing costs were forced to close their positions and buy.
Will these gains last? No, said Wedbush analyst Michael Pachter, who has a price target of $ 16. The stock closed 10% higher at $ 43.03 yesterday after short seller Citron Research suspended a live event intended to confuse the company.
We took a look at Google Trends, and it turns out that US searches for “short squeeze” are by far at their highest level since 2004, when the data began to be recorded.
Bulls, not bears, pushing short term interest higher
It was not easy to bet against the US stock market. Short interest may have grown by $ 108 billion last year to $ 1.05 trillion, but that’s only half the story. Short interest increased due to the rally in stock prices, masking the fact that short sellers were actively hedging their positions in the 2020 rally, according to S3 Partners.
“The 282 billion mark-to-market The increase in the value of stocks sold short was partially offset by $ 175 billion in buybacks to cover. Short-term mark-to-market losses have caused short cuts on many short domestic stocks / ADRs, ”he said in a recent report.
The S&P 500’s median short interest as a percentage of market cap fell to 1.5%, according to Goldman Sachs, the lowest level since 2004. The bank’s basket of stocks with short interest on higher rose more than 218% from March lows in January. 11.
A difficult 2020 and no sign of reprieve
Short sellers lost $ 245 billion last year after 57% of all short stocks ended up losing proposals. The largest losses were in the consumer discretionary and information technology sectors, and profits were minimal in the energy, real estate, financials and utilities sectors. Just five short positions generated more than $ 1 billion in profits – Exxon Mobil, AT&T, Raytheon, Luckin Coffee and Wells Fargo. By comparison, there were 52 stocks with over $ 1 billion in short losses, led by Tesla, of course. Investors betting against the electric car maker lost $ 40 billion.
This story of growing short-term interest combined with short cutbacks and short coverage continued into 2021, S3 Partners said. Short interest has increased by $ 51 billion so far and short sellers have suffered $ 78 billion in mark-to-market losses. Sophos Capital, one of the world’s largest short-selling hedge funds, has reportedly reduced some positions since late last year.