New Report Shows Short Sellers Have Lost $120 Billion
A new report shows short sellers have lost $120 billion from this year’s rally as the S&P 500 has climbed to a 14-week high.
Short sellers have incurred roughly $120 billion in mark-to-market losses this year, including $72 billion in the first half of June, according to S3 Partners.
The analyst also states that short interest in the U.S. market topped $1 trillion this month, hitting the highest level since April 2022.
“There are still many investors and hedge funds who think that this rally is ready for a pullback,” said Ihor Dusaniwsky, managing director of predictive analytics at S3.
“Or at least that several of the highflying stocks will lose steam and revert back to the mean.”
Hedge funds that are adding leverage after coming into the year positioned defensively have also increased their short positions; in other words, there’s strong indication of overleveraging.
“Hedge funds are increasing their market exposure, adding to both their long and short holdings, looking to play catch-up after missing some of the early year rally,” said Dusaniwsky.
Some of the highest short interest retail favorites include AMC Entertainment (NYSE:AMC) stock at 23.95%, Mullen Automotive (NASDAQ:MULN) at 20.25%, and GameStop (NYSE:GME) at 20.55%.
“Investors have been cautiously positioned really since last summer, in anticipation of this recession that has yet to materialize,” said Jason Draho, head of asset allocation Americas at UBS Global Wealth Management.
“The more the market goes up, the more I think those who are on the sidelines have to figure out how to get back in.”
Will This Year Favor Bulls?
While not every retail favorite has performed well this year, retail favorites such as GameStop have actually had a great start in 2023.
GME stock is currently up more than +38% this year-to-date and AMC had an even greater bullish start earlier this year though is now up only 4% this year-to-date.
In April, S3 Partners estimated that AMC short sellers paid $1.91 billion in fees to short the movie theatre chain.
“High stock borrow fees can test the conviction level of short sellers as financing costs can take a large bite out of expected Alpha,” S3 analyst Ihor Dusaniwsky said.
This is not good for those who want to jump on shorting these so called ‘meme stocks’.
This year so far, GameStop short sellers have lost more than $320 million.
“As the broader stock market has been on a tear for about a month, things are looking grim for investors with big short positions in stocks like AMC Entertainment Holdings Inc. and GameStop,” said Ihor Dusaniwsky, head of predictive analytics at financial technology and analytics firm S3 Partners.
“One factor that is also killing profits for short sellers is the borrowing costs on stocks that no one is willing to part with,” he continued.
While retail investors might feel the long-term effects of holding stock that have been beat, their conviction is actually beginning to turn the tide against these hedge funds.
Read: GameStop Short Sellers Risk Drowning in a New Massive Rally
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This is sickening! Period.
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