Is November's Epic Short Squeeze Roundtrip Over?

Tyler Durden's picture

The broadest US equity indices began to fall following the 2nd Presidential Debate in mid-October, and stabilized after the 3rd Debate. Weakness was well balanced with the 'most-shorted' names staying in sync with the indices (in a more systemic risk-off manner). Hurricane Sandy appears to the beginning of traders pressing the most-shorted names (we would suspect this was beta chasing on expectations of weakness) and then once the election results were known the most-shorted names really outperformed (i.e. fell considerably more than the index). As the chart below shows, just as the Washington 'cone of silence' began, the Russell 3000 had fallen 6% in November (and 8% from the 2nd debate), while the Russell 3000's Most-Shorted Index had dropped almost 10% for the month (and 12% from the debate) for a massive 400bps outperformance. The following two weeks led to today where the most-shorted index has been squeezed 9.25% higher to catch up to the broad Russell 300's performance for the month. As the month closes, the index and its most-shorted names are perfectly in sync and unchanged with one another - thus reducing dramatically the fast-money ammunition for further squeeze potential.


The Russell 3000 and its most-shorted names have recoupled after dramatic short-chasing post-election.


Chart: Bloomberg

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ekm's picture

The short squeeze is the effect but NOT the cause of the creep up.

I'm reading Seth Klarman right now:

The creep up fits perfectly to what Seth defines as:

If an investor buys a security with the only goal to sell it to the greater fool, if the market offers on greater fools, than he is the greater fool.


My thoughts placed in current context:

If the Primary Dealers bought stocks with the only goal of selling them to the the millions of the usual greater fools, if the market is no longer offering greater fools (basically now), then the Primary Dealers are the greater fool. The ultimate greater fool has to inevitably become the Federal Reserve.


The primary dealers ending up as greater fools (same as in 2008) is the cause.

spastic_colon's picture

dont worry, when the markets realize that taxes are being raised in a recession (yes we are in a recesson, Washingtn and the MSM just choose to ignore it) then history will repeat itself.

ekm's picture

We are in a depression, LITERALLY and without any exaggeration.

LongSoupLine's picture

I am LongSoupLine and i approve that post.


MiltonFriedmansNightmare's picture

Kindly substitute *rigged casino* for the term *markets* going forward.

Thank you for your cooperation....

CowboyzFan's picture

We played this in kindergarten.  It was called musical chairs.  Of course, if you lost you didn't have to seek bankruptcy protection.

Martdin's picture

It could be... But then again it can also not be.

fonzannoon's picture

is 2009's epic short squeeze over?

ekm's picture

Good one, actually a very good one.

ekm's picture

Can you explain shortly how could few insurance companies cause a market crash?

Unless they could sell CDSs like AIG, I can't see how they could be the trigger.

PersonalResponsibility's picture

Short squishes prior were also because of greater fools lurching in with wide eyes to buy.  All the shorts were perplexed as they were destroyed.  Then the buyers get slammed.  Rinse and repeat.  You win by not playing.  Until the manipulation stops, let them eat each-other.

Solarman's picture

A short squeeze does not require a new buyer, but the old seller to vaporize through purchase a real share to match a synthetic share created when he shorted.  Float levels will tell us if this is over or not.

tbone654's picture

It used to be a "short squeeze" had an element of not being able to borrow a stock for delivery and holders would refuse to lend out the stock while simultaneously buying more shares...  That's a squeeze...

hate to see the over use of the term today...

tbone654's picture

back in the day... copytel had had something like 3 times the number of shares short, than the total float...  but the stock kept going up, because the buyers were really "squeezing" them...

I don't think the company even had a product, was more vapor than anything...  but it went from $15, to $30, to $45, to $60 on NO EARNINGS...    Now that's a "short squeeze"...

muppet_master's picture

those were the good old

short squeezes..of course if your smarter than a 5th grader = 1) you sell DEEP in the $$$$ covered PUTS 2) you buy TONS of DEEP OUT THE MONEY CALLS and protect yoursel and MAKE $$$$ in the process as you get "squeezed".  As the stock doubles or more++ you make money on your short PUTS and your long scale out slowly, first the PUTS then the calls...= no problem !!

3) near the top or end of squeeze, you have unloaded your short PUTS (bought back) and made $$ on them...and you unload your NOW deep in the $$$$$ calls = lots of cash to add to shorts...4) RIDE all the way down to NEW LOWS on that short.

simple !!

chump666's picture

It was a pitiful correction/short market.  In some ways it deserved to be squeezed anyone caught short after Obama's victory sell off...well, what can I say.  But, at the same time you would be insane going long in this market -  we are in the post QE sell off.  Till the next round.

Crazy world.

Joe moneybags's picture

Market price action is the cumulative effect of many factors. It's foolish to pin the reason for rallies and declines on any single one of them.

muppet_master's picture

spx close = 1415

on Th. 11-29-12, HIGH = 1420....I shorted on black fri @ 1403...shorted more today @ 1415...avg SHORT price = 1410. Yes 1410, and its now @ 1415..and FUTURES are down...not exactly a short squeeze if you SCALE IN...But if you "FOLLOWED THE TREND IS YOUR FRIEND" and shorted til spx 1343 (recent TEMP bottom)...then that could be a different story....depending if you hedged yourself or no.

Previously I had gone long @ 1360, 1354 (dumped to 1343) and rode DEAD CAT BOUNCE LONG POSITONS til black fri, where i unloaded the longs and reloaded the shorts...

previous to that I had shorted spx @ 1390, 1420, 1474 (TOP 1474 day after QE3) YES I CAN RIDE THE FREAKING TEMPORARY MANIPULATION !!! avg short price then = 1450...rode til 1384 where i short covered in phases:  1384, 1360...THEN went long in phases 1360, 1354...and unloaded on black fri.

NOW avg short price = 1410...will keep riding until spx sub 1350 !!! what do i say to manipulation = scale in and yawn !! i don't care what boehner, reid, pelosi or odummernomics say !!! this porkulus is going down !!!

i hope the Tylers shorted spx TODAY !!!

LongSoupLine's picture

You have big fucking balls...

Just remember, the bigger the balls, the easier the kicking target.

q99x2's picture

Central banks own most of the equities market now. Got to ask Ben if and when he is going to sell or just keep buying.

Young's picture

Might be time. Got to hit them tops and not pig out. Trendfollowers are gonna get crushed.

Boilermaker's picture

Funny. Looks like the ES is being rammed up right now.

I know... You can't believe it.

fonzannoon's picture

I don't even think it is being rammed up anymore. I think people are jumping in. It's a few weeks after the election. Armageddon has not come to pass....the water looks warm....

DowTheorist's picture

This is why volume has been seriously diverging. As stocks rallied volume collapsed. Such divergence confirms that one, albeit not the only one, of the main drivers of the rally has been short covering.

Furthermore, either way you cut it, volume is bearish (distribution days, volume bearish at significant pivot points, etc.).  Volume does not make trends and merely qualifies them; that is: it increases the odds. If a rally is well supported by volume, the odds of further bullish action are increased. If volume diverges, bullish action is less likely. More about volume here:


To aggravate further the big picture, the primary trend of the stock market turned bearish on Nov 16 (and for leading Dow Theorist Schannep on Nov 11). A primary bear market suggests that declining prices are likely in the coming months. Primary bear markets have averaged 6 months in the past.


So anything can happen, but both volume and the primary bear trend suggest that this rally will not have long legs.


Quinvarius's picture

LOLZ.  Primary bear trend.  People do see what the want to see. 

Quinvarius's picture

Markets move on cheap money and cheap credit.  If you doubt that, you can join Kaminsky in the spank house.  85B a month and 0% is a whole lot of cheap.

Venerability's picture

CNBC refuses to mention either the Palestine vote or the Arafat exhumation - nor the Gold and WTI contract turnovers, for that matter.

Gold and Silver are likely to soar next week anyway on the contract turnovers.

But if the Arafat exhumation results come in iffy from even one of the three labs, post the vote which already has inspired mass assemblies - if so far of a non-threatening nature - combined with what is in effect the imposition of Sharia Law in the new Egyptian constitution . . . Well, how can any astute observer NOT perceive the chance of renewed tensions over the weekend and the next few weeks?

And once again, that is BULLISH for the general Market, because the PPTs have to counteract upwards pressure in Brent and Gold with various excuses of a "happy" nature.

Plus, of course, a Fed meeting on the 11th, which is much more likely than not to be once again Stimulus-oriented.

Worldwide Shorts United have tried very, very hard and get an A-plus for sheer persistence.

But it simply isn't enough.