Earlier today, countless investors who still foolishly believe that in the new normal "fundamentals" matter, screamed out in terror when Zillow announced that it would acquire Trulia for $3.5 billion or a 20% premium to the Friday close, and were suddenly silenced. The reason: with 38% of its float short (making it the 30th most shorted stock in the Russell 2000), this was one of the most dramatic confirmations of what we said was the best trading strategy under the Fed's artificial and capital misallocation regime, namely "buying the most hated names to generate the most alpha." So for all those who still believe that the market has quite a ways to go under the yoke of the Fed's centrally-planning before it all crashes into a house of rigged cards, here is the list of the most shorted stocks in the S&P500 and Russell2000, sorted by descending short interest as a % of float.
Despite an early dump on dismal data, US equity markets (except Trannies) 'v-shape-recovery'ed back up to unchanged or better (as Europe closed and POMO ended) on the heels of an increasingly more beta-sensitive AUDJPY rampfest. Trannies never really recovered (3rd down day in a row) and Russell was less exuberant in its dead-cat-bounce but the Dow and S&P closed very modestly green. High-yield credit markets continue to widen - now at 10-week wides (up 35bps from tights) - notably divergent from stocks. Away from the shenanigans in stocks, the USD ended unchanged; Treasury yields were up 1-2bps; and gold closed very modestly lower. Oil slipped 0.5% to $101.60. VIX closed unch. Only the Nasdaq is green post MH17 Headlines on 7/17 and The Russell 2000 is -1.9% and Homebuilders -9% year-to-date.
The attached Barron’s article appeared in December 2007 as an outlook for the year ahead, and Wall Street strategists were waxing bullish. Notwithstanding the advanced state of disarray in the housing and mortgage markets, soaring global oil prices and a domestic economic expansion cycle that was faltering and getting long in the tooth, Wall Street strategists were still hitting the “buy” key. In fact, the Great Recession had already started but they didn’t have a clue: "Against this troubling backdrop, it’s no wonder investors are worried that the bull market might end in 2008. But Wall Street’s top equity strategists are quick to dismiss such fears."
Well that escalated quickly. Friday's micro (earnings-based) weakness has extended to today's macro weakness and removed any "ignore the geopolitics, just buy the dips"-exuberance. All US equity indices are once again below the levels pre-MH17 headlines with the Dow and Russell 2000 worst performers. It appears investors need some reassurance that Yellen's "price-equity" ratio is still 'fair'.
A hot CPI and better-than-expected home sales was all that was needed (aside from USDJPY and VIX pumps) to send the S&P 500 and Trannies to new all-time intraday record highs. Escalating sanctions threats and death tolls be buggered... this is going to the moon, Alice. Treasuries were less than exuberant and rallied 4bps off their high yields of the day (i.e. totally disconnecting from stocks) and even USDJPY decoupled through the middle of the day. The USD rose 0.3% (biggest jump in 3 weeks) testing up towards 5-month highs. Gold and silver were dumped, pumped, and then dumped as CPI and housing data hit to end the day mixed. Credit rallied but diverged again this afternoon and remains wider post-MH17. VIX closed back below 12. Only the Dow remains modestly red since MH17 headlines hit last week and in spite of all this exuberance The Russell 2000 remains -0.5% year-to-date.
Equity prices tumbled early on - giving up all Friday's gains - before rampaging phoenix-like (thanks to an AUDJPY driven short squeeze) back to 'unch' after rumors of ceasefire discussions in Israel rolled around trading desks. Oil - it appears - was looking at the death-toll (and the fact that Hamas can only accept a deal that denies Israel's existence) and soared back towards $105 (its 2nd biggest day in over a month) notably divergent from stocks. The Russell 2000 was the laggard all day (ramped the most of the lows on the squeeze) and Trannies the leader. Since the MH17 headlines hit, the Nasdaq is the only index green, Treasury yields are -4bps, and oil up almost $4. The USD ended the day unch, 30Y Yield -2.5bps, gold, silver, and copper up modestly, and VIX up 0.5 vols at 12.7. Stocks closed on the weak side.
In its latest Hedge Fund Monitor, BofA's Ankur Singh finds that while hedge funds are willing to be the boats that rise with the central banks' liquidity tide, nobody is willing to fight the Fed in its latest admission that a subset of stocks, mostly those that make up the Russell 2000 index, "appear to be overpriced." As a result, BofA reports that "Specs increased Russell short position to a three year high. MAA and technicals suggest we may have further increase in Russell short positions." So how are various hedge fund strategies doing? Here is the full breakdown.
Just imagine how high stocks would be if more jets were shot down in Ukraine, more ground operations were unleashed in Gaza, more sanctions were placed on global growth, more European and US macro data disappointed, more job cuts at major firms, and more European banks declared bankruptcy. Today's farcical Friday surge (with the Nasdaq up 2% from its overnight lows and 30 point rip in the S&P) appears 100% based on the squeezing of "most shorted" stocks (best day in over a month) and the ramping of AUDJPY. Credit markets ignored the idiocy; Treasury markets ignored it; The USD went nowhere (after EUR dumped on Italy downgrade then recovered). Gold, Silver, and Copper all closed down 2-3% on the week (given back yesterday's gains) as Oil surged 2.2%. VIX dropped over 2 vols to close with a 12-handle (but disconnected notably from stocks at the close). It's not all ponies and unicorns though - Biotechs are down 5% from Yellen's comments and the Russell 2000 closed red for the 2nd week in a row (and still -1% year-to-date). Best Dow Friday in 5 months (up 11 in a row).
Thanks to the capable carry-induced ramp in AUDJPY (and a helpful OPEX pile-on for VIX), US equity markets are surging this morning (Russell 2000 above yesterday's highs?!) on the heels of the biggest short squeeze in over a month... SSDD...
Despite an initial attempt to rally after the terrible news out of Ukraine hit, stocks were unable to mount any serious BTFD as uncertainty spread. Despite Bullard's best efforts, bond yields crashed lower (over 7bps today) with 10Y at 2.45% near the lowest close in 13 months. Gold prices jumped over $20 (even as the USD Index flatlined - though JPY strengthened notably as risk-off set in). VIX exploded 3.7 vols (its biggest swing - 45% - since Aug 2011). Equity markets cratered into the close as Israel ground invasion news (A White House Lockdown) added to the concerns leaving all US markets red post-payrolls and red post-Yellen. The S&P 500 dropped 1.18% - its biggest drop in 3 months. The Russell 2000 is now down 2.5% year-to-date.
As US equities put in their ubiquitous v-shaped recovery from any opening weakness, Treasury yields are pushing the lows of the day. 10Y Yields are back below 2.5% - the lowest in 7 weeks. AUDJPY is fully in charge of equity levitation today so far (though Russell 2000 and Biotech names mostly are notably lower and not bouncing as exuberantly as Trannies and the Dow).
Since Janet Yellen started speaking yesterday, the USD has jumped most in 10 weeks to 1-month highs, Treasury yields have risen 5bps at the short-end but are unchanged at the long-end, Gold and silver are down 1%, oil up 1%, and copper -1.4%. In stock land, The Dow and Trannies are leading, S&P is unch, and Russell 2000 is not happy (-1.3%). VIX tested down to a 10-handle once again (but closed at 11.1). Credit markets remained far less excited than stocks today. Biotechs are down over 4.5% since Yellen started speaking and Social Media -1.2%. The Russell 2000 closes -0.8% for 2014.
What does Yellen know? Nothing apparently (if she says 'sell') US equity markets, juiced by China's GDP data (but missing China's retail sales and home price slump) and helped by Portugal 'reassurances' that have yet to materialize, are soaring this morning... VIX is back at a 10-handle as Dow hits record highs, the S&P nears record highs and even small-cap, social media, momo, tech fantasy stocks are ripping... you can't keep a good market down... It seems "fight the Fed" is the new "Don't fight the Fed"
It's Tuesday but not everyone had fun... Having been told by the Fed that small-caps were stretched, investors bid Trannies and Industrials into the green (well the Fed never said they were rich?) Russell and Nasdaq were sold (but only dropped around 1% as every trick in the book was found to "fight the Fed"). VIX slams, JPY ramps, Gold slams... but amid all the furore of the "Sell" momo stocks signal from the Fed, bond markets shrugged (admittedly with some noise) closing flat in 10Y (and modestly higher in yields in the short-end). Gold was monkey-hammered once again, smashed back below $1300 (but remains above June FOMC levels) with its worst 2-day drop in 10 months (breaking its 20, 50, and 100DMA). Biotechs closed worst among Yellen's shorts and Russell 2000 ends -0.65% for 2014.
Everyone knows that you "don't fight the Fed" - and sure enough, traders are selling momo, social media, and biotech stocks, sending the Russell 2000 ands Nasdaq to the lows of the day. Despite the best efforts of USDJPY momentum igniters - which has now shifted to tracking Treasury yields, pushing them modestly hgher. No bounce at all in broad US equity markets (though we expect the spin to be a rotation from growth to value once again very soon). Gold jumped on the dovishness but fell back to unch as did the USD. The S&P 500 is now in the red post-payrolls. Summing it all up - saying that these sectors are 'stretched' but the market is within 'norms' just won't cut it... Yellen is losing control and this level of specificity (and honesty) implies some degree of panic at the Fed.