Goldman Now Pitching Most Shorted Stocks

Tyler Durden's picture

For over a year we have discussed that in Bernanke's centrally-planned markets, in which the risk-return formula is now wholly absent the former, the best source of "alpha" (purely in the context of recognizing that the market has become a complete and total joke) for over a year has been going long the most shorted companies. And as we reminded just over a month ago, the most shorted stocks have returned double the broader market in the past year alone. Which is why we were not surprised to see that none other than Goldman yesterday, issued research formalizing none other than going long the most shorted stocks in a piece titled "Investors focused on the results of high short interest stocks." Since Goldman is legendary for flipping at inflection points, especially with a 1+ year delay after the strategy has been working flawlessly, this probably means that going long the most shorted stocks is no longer a viable source of "alpha."

From Goldman:


Short interest as a percent of S&P 500 market cap is currently 2.1%, in line with the average over the past year. While the share of market cap held short stayed flat, the short interest ratio (days to cover) has risen steadily since April 2012 as volumes remained low.



This week, investors focused on how stocks with high short interest as a share of market cap are trading this earnings season. Of the top 50 reported S&P 500 companies ranked by short interest, short interest ranges from 6% to 31% of market cap. Short interest for the median S&P 500 stock is 2.1% of float cap.


High short interest stocks reported a similar frequency of earnings beats and misses. Revenue results skewed more positive. 26% of S&P 500 companies beat revenue expectations while 36% of high short interest stocks exceeded consensus expectations by one standard deviation or more.


High short interest stocks were more likely to outperform the market on the next trading day than the typical S&P 500 stock indicating that there may be short covering post-earnings results. 58% of the high short interest names outperformed the S&P 500 one day after reporting results versus 47% for all reported S&P 500 companies.


However, performance of the median high short interest stock is similar to the median S&P 500 stock since the start of earnings season. Since October 4, the median high short interest stock returned 4.6% while median S&P 500 stock returned 4.1%.


Next week, six stocks with over 10% of float share held short are expected to report: Frontier Communications (FTR), IntercontinentalExchange (ICE), Windstream Holdings (WIN), Chesapeake Energy (CHK), Dun & Bradstreet (DNB), and Cablevision Systems (CVC).


Of course, if indeed this means that buying the most shorted stocks is no longer a "sustainable" strategy, that would be ok as it implies one small step toward returning to a normal, credible, non-manipulated market: something that both we and David Einhorn openly lament. Recall from David Einhorn's Advice On How To Trade This Equity Bubble:

Finally, there are the market participants whose investment process appears to be “bet on whatever has made money most recently.” They’ve noticed that stocks with large short-interest ratios have materially outperformed over the last year and they continue to invest accordingly. When “high short interest” becomes a viable stock-picking strategy and conventional valuation methods no longer apply for many stocks, we can’t help but feel a sense of déjà vu. We never expected to find ourselves in an environment like this again, given the savings that were lost when the internet bubble popped.

Alas, we are smack in the middle of the same bubble once again, and will be until the Chairman keeps playing the musical chairs dance ever faster and faster until finally everyone drops dead.

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Seize Mars's picture

The only guys who read this industrailly produced propaganda are the "muppets," but if they are fancy we can call them "moo-PAYS," heh

icanhasbailout's picture

Would you really be surprised if someone at the Fed is using the list of most shorted stocks as their pump-first-and-most list?

Landrew's picture

I think you can  guarantee that is exactly what is happening! The price action first ten mins and last ten mins of the day tells all. Nice catch! 

PT's picture

Rigging Roulette:
Add up how much money can be won on red.
Add up how much money can be won on black.
Add up how much money can be won on the zeroes.
Add up how much money can be won on each number.
Whatever number has minimum winnings, that is where the ball lands. 

Seize Mars's picture

This fucking stock market is going to zero. Guaranteed. It may triple first, but it's definitely going to zero.

LawsofPhysics's picture

In fiat units, the "markets" will never go down again.  Utopia is finally here, hooray!  In terms of real value, well yes, it will be less than zero (as in an actual liability).

Don't believe me?  Let's take a look at those paper promises again...



IllusionOfChoice's picture

With Goldman's history, does this mean we're near a local top? I want some more 666 SPX.

LawsofPhysics's picture

Nice to see that those in the club are still frontrunning themselves.  Come on muppets, jump right in, the waters fine...

LetThemEatRand's picture

And don't mind my fin.  I'm just a dolphin.

LawsofPhysics's picture

Actually, since these guys are the government, they don't actually need the muppets to do anything.  They will simply steal what they need to keep their lifesytles and the game going via their government agents.

"Give me control of a nation's money..." - well, you know the rest.

hedge accordingly.

disabledvet's picture

"we're so short you peons have no idea... so now you go long!" there's a point where Goldman will be recognized as in fact two companies...the "what we say" side of the business and the "what we do" side of the business. still they've been all over the map this year...their gold calls have been a sight to behold actually. "perfectly wrong" comes to mind. now followed up by a Full Frontal on the House of Demon this Fall? Yeah...QE is going PERFECT!

max2205's picture

But yet no volitility.   The vix has gone the way of the CPI....

slotmouth's picture

VIX is a terrible indicator of unknown risk, but it is great at stating the obvious after it has happened.

Gringo Viejo's picture

And the beat gos on......................

until it doesn't.

venturen's picture

UP IS DOWN....Down is the new up!

Bearwagon's picture

That's just a modern form of fascism, namely corporatism. It always works the same way:
Fascism negates that individual happiness is to be taken care of by individuals: You are nothing, your nation (or collective) is everything. That is the most extreme form of the "corporatism" we live in at the moment. One group of people, who think of themselves as "chosen", in the government, the admistrations and the media, dictates and propagates what all the "less enlightened" other people have to do and what they have to let alone, based on what allegedly benefits the collective (but in reality: only the self-proclaimed elite) most. Either via taxation or direct regulation this "elite" tries to lead the behaviour of the people in the desired direction. But because the "elite" is by far not as smart as they think of themselves, their interventions always have undesired side effects.
Instead of canceling such interventions, new ones are introduced. For example: State-run healthcare encourages incautious handling of the own body. That strains the healthcare-system, and thereby prompts the state to pass laws, e.g. against smoking or to ban alcohol. Those laws then require more control, and that even further reduces the formation of personal responsibility. That has consequences for many other areas of life, but always strengthens the position of the self-proclaimed "elite". This development inevitably ends with complete state control over complete regulation of each and every impulse anyone could ever have.
The states encroachment in the money-system is especially treacherous. The modern state enriches itself by means of the banking sector, which it protected and coddled, as it slowly robs the citizens via inflation. Private decisions about investment or consumption no longer comply to just subjective valuations, but more and more to the intentions of the state, which means the ruling "elite".
If inflation diminishes the benefits of saving, consumption increases. Because of low interest rates one is more willing to go into debt and so becomes dependant. At the same time, the state and the corporations that are pumped by it, become ever more powerful relatively to the normal citizen. So they can afford absurd things, even if a great majority of the citizens are against it, like wars for example.
There seems to be a tendency towards ever broader interventions, on the one hand because power corrupts, and on the other hand because the decision makers would never deviate from the premise that the collective is more important than the individual and that the ruling class knows far better what's good for the individual, than oneself.
The free competition gets not restricted to protect the individuals (that's just propaganda), but to prohibit any outcome which would be unforeseeable, incalculable or uncomfortable to the ruling "elite", like insubordinate competitors. So free competition gets restricted more and more. In contrast to socialism, in fascism private property and entrepreneurship get nominally and apparently supported, but exactly like in socialism the posibility to decide for oneself what to do with ones property get's diminished more and more.
Enjoy, and listen to what LoP says: What's unsustainable will not be sustained.
"Hedge accordingly"

nmewn's picture

lol...Kathleen Sebelius given a copy of Websites for Dummies for future reference...

...of course this assumes she can read & comprehend ;-)

El Vaquero's picture

Snark at its finest. 

Catullus's picture

It's called "Free Money". You still have to be crazy to be short right now. Better to be long and wrong right now.

yogibear's picture

Buy on the dips it's been that way for years. 

Any bearish websites out there have geen destroyed by all the Fed's infinite QE and HFTs.

ItsDanger's picture

Selective shorting is a great strategy at ANY time.  GMCR & TSLA have been great shorts recently.  Obviously shorting the S&P would be crazy though.

Yen Cross's picture

 Just look at how "Fast & Furious" the [emerging market X yen] carry trade unwound last Wednesday. The Fed. statement wasn't hawkish. It just lacked extended guidance.

  The usd spiked and the yen still beat it down. The Asian emerging market vs Yen trade got called in "big time". Any usd strength was more then offset by the fear of lost "hot money" in Asia. (via tapering)

  The Bernanke wagon train is in 'Death Valley' next to a stream in the middle of summer. If they even think about heading over the pass to cooler weather, death is certain!

Haager's picture

Big dip ahead into the POMO on Monday. Nice to know, thanks Goldman.

Quinvarius's picture

Their strategy is to buy the shittiest stocks available.  If anything ever tells you Goldman was completely worthless as an advice giver, it should be this.  "Just go out and buy and hold the shittiest stocks.  Trust us."