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Bizarro Market Winning Strategies 101: Go Long The Most Hated Stocks

Tyler Durden's picture


We discussed the bullish themes (and Nomura's skepticism) earlier today but as the S&P 500 cracks 1300 once again and banks (GS cost-cutting sustainability?) and builders (NAHB Index? context please) are off to the races once again, we thought it might be appropriate to see just how well the worst of the worst has outperformed the market. Using our standby GS index that tracks the most shorted names in the broad market, we see that year-to-date, the most-shorted names are up 5.8% against the Russell 3000 which is only up 4%. Furthermore, since late yesterday, the most-shorted names have doubled the market's performance (+2.1% vs +1% from 1430ET yesterday).

Quite an impressive outperformance of the most-shorted's performance seems like a resurgence after some compression to reality but...


...on a longer-term basis we have seen worse - right after the Thanksgiving ripfest, not to mention January of last year when we first saw a preview of just what to expect. It dose seem like we are getting stretched though - but of course that is relative and so a continued meltup in stocks does not mean retracement in short prices (just underperformance).

So as a result, we present readers with the opportunity to join the lunacy, if they so wish, and jump head first into the worst of the worst: these are the 30 companies which according to CapIQ have the highest Short Interest to Float ratio in the Russell 2000. Of course, these names are hated and thus massively shorted, for a reason. But we are now in a market in which fundamentals are not only ignored, they are vilified. So it is more likely than not that purely as a function of margin calls, borrow pull, and general revulsion toward basic long/short strategies, these stocks will continue to outperform the broader market, until they dont and crash spectacularly (which is why hedging with some cheap OTM puts is a good idea). Naturally, the suggestion to go long the most reviled stocks is encouraged only for the insane subset among our readers, or the hedge fund career risk track, or both. Usually the two are interchangeable.

A CIX of these names equal-weighted has handily outperformed year-to-date and from the mid-December lows - so indeed, we leave it up to you - do you trade the "Go Long The Most Hated Stocks" winning strategy (and pray you will be out before everyone else - because we all are the world's best market timers... at least in our own minds).

Charts: Bloomberg


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Wed, 01/18/2012 - 16:28 | 2075620 LawsofPhysics
LawsofPhysics's picture

There tyler goes again, giving it away for free.

Wed, 01/18/2012 - 16:38 | 2075649 chdwlch1
chdwlch1's picture

Blue Horseshoe loves Blue Nile....

Wed, 01/18/2012 - 18:03 | 2075970 Hulk
Hulk's picture

pioneer aviation...

Wed, 01/18/2012 - 16:39 | 2075657 smlbizman
smlbizman's picture

sorta maybe slightly off i the only one who thinks trish reagan on bloomberg would show you her pussy for a $1 at lunch time in school?......

Wed, 01/18/2012 - 16:48 | 2075682 economics1996
economics1996's picture

She use to sniff hair spray a lot.

Wed, 01/18/2012 - 16:46 | 2075683 sabra1
sabra1's picture

janet napolitano charges .50 cents!

Wed, 01/18/2012 - 17:31 | 2075818 LongBallsShortBrains
LongBallsShortBrains's picture

.... To see Trish's beaver ?

Or Janet's cock?

I am confused.

Fri, 01/20/2012 - 08:25 | 2080608 AbruptlyKawaii
AbruptlyKawaii's picture
send trish regan back to CNBS Wednesday, January 11, 2012 1:49 PM From: To:

listen if i wanted to watch idiot bimbo regan talk over her interview guests and blabber like those idiots on CNBS i would not be turning to bloomberg tv!

either train this imbecile animal  to properly do an interview or send this cock sucking whore back to the strip club she escaped from. 

maybe ill turn on foxbusiness.




*funny you should mention her, above is an email i sent last week.

Wed, 01/18/2012 - 16:46 | 2075684 Sudden Debt
Sudden Debt's picture

Just bought 4k of TZOO, kind of looks like a no can lose right now:)

Wed, 01/18/2012 - 16:52 | 2075703 economics1996
economics1996's picture

The PE ratios in the Great Depression were around 5-1.

Wed, 01/18/2012 - 16:54 | 2075710 Sudden Debt
Sudden Debt's picture

Nice, where did you find that out?

Wed, 01/18/2012 - 20:30 | 2076446 HardlyZero
HardlyZero's picture

So...Go short the most loved stocks ?   Anyone shorting Apple ?  or Google ?

Wed, 01/18/2012 - 21:04 | 2076518 DeadFred
DeadFred's picture

For the near term don't go short anything, unless you enjoy having your face ripped off. For everything there is a season. There are elections ahead and ramping the DOW is the only thing the gov. can do to keep the sheep from remembering just how screwed they are. I just bought calls on BAC yesterday. I hope they make a profit and hope they don't permanently stain my soul.

There is a lot of justified negativity out there but none is for tomorrow. That's Algo 101.

Wed, 01/18/2012 - 23:42 | 2076918 HarryM
HarryM's picture

Hamas could nuke Tel Aviv right now and the market would continue to go up.

ZeroHedge is good reading , just don't invest based on what you read.


Wed, 01/18/2012 - 16:32 | 2075627 The Axe
The Axe's picture

Lets face it the market is insane......

Wed, 01/18/2012 - 17:31 | 2075816 agent default
agent default's picture

What market?  We have the FED over here, the ECB over there and a few HFTs scattered around for some sort of variety/comic relief purposes mostly, and there is the market.  In other news, the US has a budget, the Euro is a currency or something like that along with the Dollar, and a +60% haircut may or may not be a credit event, depending on which way the wind blows on Mars.  We're passed insane.

Wed, 01/18/2012 - 18:04 | 2075976 OldE_Ant
OldE_Ant's picture

and .. "go right to LUDICROUS SPEED". (quote SpaceBalls)  lol. Market.   I call it the FEDhole toilet paper market, where everyone gets to wipe their asses for free, but no-one can stop smelling the crap.

Wed, 01/18/2012 - 16:35 | 2075635 bob_dabolina
bob_dabolina's picture

Time to start shorting again

50 /es points at best upside here before another washout

Wed, 01/18/2012 - 16:45 | 2075677 sabra1
sabra1's picture

do not short!!! when your computer screen displays, "website unavailable, please try again later," calling your trading account, or bank, by phone will be futile! MFG was a test to see how much uproar would occur! none!!!

Wed, 01/18/2012 - 16:57 | 2075695 bob_dabolina
bob_dabolina's picture

yea yea, let's go back to trading slips under a buttonwood tree. no no, no one trade anymore; MFG is a clear warning that no one should trade anything ever again, no buyers no sellers, just hunker down and rely on dafodiles and rain water for our sustenance

Wed, 01/18/2012 - 16:51 | 2075697 clones2
clones2's picture

100% agree.... However, I'm going a little long today for a few more % on this momentum first. :-)

Wed, 01/18/2012 - 16:56 | 2075711 bob_dabolina
bob_dabolina's picture

I'm gona' nibble at shorting up to 1350. Just a little here, a little there, it's pretty hard to get the timing perfect, and there's no rush.

Last night Robo brought out the LULU chart. That's always a good signal that the top is near.

Wed, 01/18/2012 - 16:34 | 2075639 fonzannoon
fonzannoon's picture

Metals flat. Miners down. Financials soaring. They have truly broken my spirit.

Wed, 01/18/2012 - 17:19 | 2075788 The Deleuzian
The Deleuzian's picture

The miners have not caught a bid on this 'gold rally'...KGC (Knights of the Golden Circle) got blowtorched 20% yesterday for rising costs...GS goes up 7% for pretty bad numbers...Go figure

Wed, 01/18/2012 - 17:58 | 2075954 barkingbill
barkingbill's picture

maybe the 'market' isn't insane....just evil....maybe if we want to make money we should be holding lots of petrodollars and buying up defense industry, prison corporations and big pharma getting ready for the wars and mass innoculations....

Wed, 01/18/2012 - 18:00 | 2075956 barkingbill
barkingbill's picture

and lots of too big to fail banks....go long the illuminati. 

Wed, 01/18/2012 - 16:34 | 2075640 GeneMarchbanks
GeneMarchbanks's picture

'Go Long The Most Hated Stocks" winning strategy'

OK, but you promise to not get those delicious Chipotle burritos?

Wed, 01/18/2012 - 16:38 | 2075651 sabra1
sabra1's picture

the whole premis, is to sucker in one and all, to go long the market. think like a crook, and you'll know exactly where all this is heading.  

Wed, 01/18/2012 - 17:04 | 2075737 optimator
optimator's picture

Think l ike a crook and get on the FED Bankster E mail list.

Wed, 01/18/2012 - 16:39 | 2075652 LongSoupLine
LongSoupLine's picture

Cue robotard to repeat some sell-side money harvesting whore's criminal book talking he just watched on CNBS.

Wed, 01/18/2012 - 16:39 | 2075653 slaughterer
slaughterer's picture

When it gets to this: a bear macro website recommended going long utter crap stocks, then I know the market is about to turnover very hard.  

Wed, 01/18/2012 - 16:42 | 2075667 Tyler Durden
Tyler Durden's picture

Actually, the premise is not to recommend anyone do anything, but to merely point out the sheer idiocy phase of the market, which lately comes with greater and greater frequency, and which is currently the only one out there. Three words: cheap OTM puts

Wed, 01/18/2012 - 16:47 | 2075686 prains
prains's picture

10 minutes in the bin for you slghtr

Wed, 01/18/2012 - 16:52 | 2075704 clones2
clones2's picture

and cheap VIX calls...

Wed, 01/18/2012 - 16:57 | 2075728 slaughterer
slaughterer's picture


TVIX Calls +  

TZOO calls (just to hedge the "full retartd" factor).  

Ok, I am ready for the rest of January.  

Wed, 01/18/2012 - 16:58 | 2075729 LawsofPhysics
LawsofPhysics's picture

It will get cheaper.

Wed, 01/18/2012 - 17:22 | 2075795 Comay Mierda
Comay Mierda's picture

fo' sho. wait a couple days

Wed, 01/18/2012 - 16:39 | 2075654 Da55id
Da55id's picture

max leverage per $ deployed if intent is to lift indices

Wed, 01/18/2012 - 16:39 | 2075658 valkir
valkir's picture

My simple advise to all-act as every day you have birthday.

Wed, 01/18/2012 - 16:44 | 2075676 DB Cooper
DB Cooper's picture

Seems that advice will make you very old very quick.

Wed, 01/18/2012 - 16:42 | 2075660 The Deleuzian
The Deleuzian's picture

Added STEM to my watch list about a month ago for a short-term trade ...The #1 most hated...Definitely top 10!!! 

Wed, 01/18/2012 - 16:40 | 2075661 chump666
chump666's picture

don't stress it.  this Jan market is doing what Jan markets do...they go momo, or try to hold long.  bring up your charts and look at the AUG 2011 high, when the whole market went short in mins.  jumping in now what be missed the meltup.


Wed, 01/18/2012 - 16:58 | 2075698 SheepDog-One
SheepDog-One's picture

No doubt it would require balls of stainless steel to jump in long here, this has been a 200 point ES meltup based upon nothing except the idea that Deus Ex Machina will surely appear soon to rescue the plotline. Bunch of nonsense, and I think it was a pump to set up short positions.

Wed, 01/18/2012 - 17:21 | 2075793 chump666
chump666's picture

I agree.   It's very stretched now.  good run though, but expected.  

as for short pos gathering, yeah.  july/aug 2011 tops are closing in.  

Wed, 01/18/2012 - 16:40 | 2075663 Everybodys All ...
Everybodys All American's picture

Bernanke or someone buys back Treasuries from the Chinese and Japanese who are dumping them left and right and the Treasury market prices do not go lower. Now you want me to explain how hated stocks go higher?

Wed, 01/18/2012 - 16:41 | 2075666 Zaydac
Zaydac's picture

Makes sense to me. Conventional wisdom says markets turn when everyone is on the same side. Everyone bullish = nobody left to buy (everyone already in) - first sign of a a slip and everyone changes to the other side of the boat and over we go. Same thing the other way round. Same thing again for individual stocks. Everyone hates a stock? Therefore masses of shorts, nobody left to sell. Along comes Hayseed Hillbilly, or his stockbroker, or the PPT, or someone with an eye on the ball (or the CEO's great-aunt with an eye on the CEO's bonus) - makes few a small purchases - price goes up, triggers the stoploss of a few nervous shorters, and its up, up and away - self reinforcing once decent amount of stoploss has been triggered. Then the whole thing starts all over again. This market is more like a Ouija board than it has ever been before. It is all about momo, as the TDs have been saying for ages. Value only plays its part as one setup among many - what moves prices is the sort of thing we are seeing here. Doesn't mean you shouldn't play (but take care not to play using MFG, oh, sorry, advice a bit late there...)

Wed, 01/18/2012 - 16:45 | 2075680 I should be working
I should be working's picture

How can short interest be over 100% for Travelzoo?  Someone sold it short to another shortseller?

Wed, 01/18/2012 - 16:52 | 2075701 Zaydac
Zaydac's picture


Wed, 01/18/2012 - 16:53 | 2075705 The Deleuzian
The Deleuzian's picture

If I remember had a similar situation a few years back...There were more shares outstanding then were issued...When the regulators got involved...The 'shrugging shoulders' came out...

Wed, 01/18/2012 - 16:52 | 2075702 alien-IQ
alien-IQ's picture

we'll close ripping into a new usual.

Wed, 01/18/2012 - 16:53 | 2075707 firstdivision
firstdivision's picture

HYG falling into close :-/

Wed, 01/18/2012 - 16:53 | 2075708 ghostfaceinvestah
ghostfaceinvestah's picture

Trash Rally v.10 (or is it v.100)?  It will end badly, like trash rallies always do.

Wed, 01/18/2012 - 16:54 | 2075714 nudlee
nudlee's picture

I can see some "Robo" watermarks among the lines

Wed, 01/18/2012 - 17:01 | 2075731 s2man
s2man's picture

Well dang. I just blew my wad on PSLV.  Maybe next week...

Wed, 01/18/2012 - 17:06 | 2075740 q99x2
q99x2's picture

Making money during the Banksta Mafia rule. Good eye.

Wed, 01/18/2012 - 17:08 | 2075748 navy62802
navy62802's picture

Bizarro market is correct. Following a weekend where numerous European nations had their credit ratings downgraded and Greece's "haircut" deal fell apart, the Euro has gained strength against the USD and European bond yields have dropped.

Wed, 01/18/2012 - 17:09 | 2075752 Poor Grogman
Poor Grogman's picture


News flash..


Zerohedge hacked by Dodo trader...


Wow, bout time we had some tough new internet security laws passed...

Wed, 01/18/2012 - 17:09 | 2075755 rumblefish
rumblefish's picture

I can't believe is skullcandy is a listed company. they make the cheapest/lowest quality earphones.



Wed, 01/18/2012 - 17:20 | 2075791 Comay Mierda
Comay Mierda's picture

SPX will prob hit 1315ish before it goes back under 1300

Wed, 01/18/2012 - 17:23 | 2075797 SDRII
SDRII's picture

bloomberg adding fuel with story on china looseing up bank capital weightings

Wed, 01/18/2012 - 17:23 | 2075798 dcb
dcb's picture

well since htye publish this data the boys know where it is easiest to get a short covering rally. no surprise, just more proof of manipulation

Wed, 01/18/2012 - 17:24 | 2075799 chump666
chump666's picture

also good to watch is if asia buys the USD on the dips...shanghai got boned last session

Wed, 01/18/2012 - 17:35 | 2075840 junkyardjack
junkyardjack's picture

I went long AMZN.  What sector is worst than retail?

Wed, 01/18/2012 - 17:36 | 2075843 Silverhog
Silverhog's picture

eBay & PayPal posting a profit as everybody is selling their crap for extra dough to pay bills. I sold some old car parts and bought Silver, yippee!

Wed, 01/18/2012 - 17:42 | 2075868 chinaboy
chinaboy's picture

In the name of the market, they persecute the shorts.

Wed, 01/18/2012 - 17:49 | 2075905 fonzannoon
fonzannoon's picture

I am going to drink a lot of scotch tonight and say angry things to all the bulls on this site.

Wed, 01/18/2012 - 18:03 | 2075965 barkingbill
barkingbill's picture

im settling for beer....all i got. 

Thu, 01/19/2012 - 17:01 | 2079215 Comay Mierda
Comay Mierda's picture

dont worry, SPX should open significantly lower tomorrow.  im seeing major divergence in the moving averages indicating its overbought and an upward wedge into heavy resistance (bearish pattern).  pile on the puts.  however, the medium term trend is up

Wed, 01/18/2012 - 18:19 | 2076009 bnbdnb
bnbdnb's picture

Here is a weird one. Short the EUR/USD on JUST Wednesday between the hours of 0400central and 2000central. The loss of EUR/USD since 9/25/2011 is approximately 1000pips just in that time frame, although real loss is 786pips.

9/25 1.3636 - 1/18 1.2850

Wed, 01/18/2012 - 22:05 | 2076568 hyper-critical
hyper-critical's picture

Gentlemen, start your engines. Mark this week as the week the QE3 trade began in earnest.

Treasury yields down/stable (most importantly, not up w/ risk assets), high yield debt up, broad markets up, dogshit companies up, dollar down across the board.

An ES close above 1302.50 tomorrow, and 1288 on Friday will cause a 'recycling' in the DeMark indicators, meaning the existing signs of trend exhaustion are null and void. Next target considerably higher. And you better believe some of the biggest names out there watch these indicators closely.

This post is spot on, and I'd add that European stocks could be a great place to be for this next move. There's also a HUGE spread trade out there, for those who are so inclined (hedgies who need to look sophisticated for their own/their bosses' ego or who have liquidity concerns), going long locally-denominated international index ETF's (i.e. EWZ) or long EM/USD x's (i.e. BRL) short int'l stock index futures (i.e. BOVESPA). Maybe even UniCredit (I'm part of the 'hedge fund career risk track' subset Tyler refers to above, but not the 'insane' subset...I do think there's some room for differentiation there). And anything denominated in EM currencies. For retail investors whose IRA/401k's may have taken a hit in 2011 being in funds like Templeton Global Bond, and who have to play the markets long-term in mutual funds, overweight them AGGRESSIVELY. Tomorrow.

Correlation traders are about to get donkey-punched (I love when this happens to those neanderthals), and there's 5-10% upside before they realize things have changed and finally start putting the QE trade on (at which point, my best guess around 1360 on ES, we'll be ripe for a sharp pullback, possibly coincident with coincident U.S. economic data finally catching up with present reality/a Greek default/change in focus to the possibility of Portugal defaulting/leaving the Euro). Then the Feb LTRO, which will screw those covariance douchebags yet again because they don't realize markets will require people to be more dynamic going forward, as rolling efforts to devalue fiat currencies is the new dominant paradigm.

Tyler has been talking about the potential for the Feb LTRO to be HUGE, and I couldn't agree more. I've commented in the past that the LTRO, in its present or future form, IS the bazooka. And if it doesn't work, the discord between what came out of Draghi's mouth in his first couple months as ECB head and his actions since then is overwhelming evidence that he will break out the nuclear bomb next (well, perhaps cruise missiles, then the nuclear bomb). European QE may be off the table, but that's because they're not afraid of deflation...yet. They have a single mandate not out of some archaic fear of Weimar, but because a school of thought in academic economics believes focusing on price stability is the most efficient (read: 'min-loss') way to promote long-term growth. Not because they disagree with what the Bernank, in his own mind, is trying to do, but because they think there is a better way to do it (Pareto optimal, especially considering their position in the global economy and how other central banks have chosen to structure themselves).

I'm a zhedger through and through when it comes to the Fed, global monetary system, politicians, intractability of the world's problems, etc., but I'm also an analyst/trader at a very successful investment fund, and if you're in this game to make money, you have to keep the following John Henry quote in mind: "Paying closer attention to 'what is' provokes a much greater [market intelligence] than analysis."

Giddyup, and enjoy the ride. #SantaClaus_better_L8_than_never

Wed, 01/18/2012 - 22:25 | 2076734 SDRII
SDRII's picture

Check the BRL long - gov't talking more capital controls

As for the get on the momo train, you forgot the safe harbor (smart investment fund notwithstanding)

Thu, 01/19/2012 - 00:08 | 2076969 hyper-critical
hyper-critical's picture

Didn't say smart - said successful. Being 'smart' can be a huge impediment to being right and making money in the markets, but it's usually a necessary ingredient for being a douchebag. Larry Summers is smart. Ben Bernanke is smart.

Your point about BRL is accurate, and may explain part of the move, but it's just one example. Same goes for MXN, SGD, KRW, NOK (all the scandos), GBP, NZD, AUD, gold, silver, platinum, palladium. This is a dollar weakness story. Ignore that at your peril.

But keep endzone dancing. One of the reasons I posted was to get some intelligent criticism of my thesis. I still hope to get some.

Thu, 01/19/2012 - 00:52 | 2077041 ucsbcanuck
ucsbcanuck's picture

OK, I'll bite. I'm not going to criticise your trades - but I'm going to ask you a few questions:

- Who are you really?

- What are your motives in posting all this?

- How are you going to fuck all those who take up your trades?


Thu, 01/19/2012 - 01:50 | 2077134 hyper-critical
hyper-critical's picture

- 20-something year old male. 5'9'' on a good day. 4th generation caucasian of European descent. Auburn/brown hair, somewhat athletic build, and, from what I'm told, decently hung (but that could be a lie).  Analyst/trader at a firm that has no broker/dealer business - we don't sell any products, our interests are wholly aligned with clients', and we're not really big enough to push around markets in any meaningful way.

- Motive is threefold: 1) to help clarify my own thoughts by writing them out; 2) to get feedback from a group of people (readership of zhedge) who I widely admire and respect; and 3) given that mine isn't exactly a mainstream view, I thought it might help inform other peoples' opinions, either because they incorporate it into their own, or they disagree and it strengthens their belief in some opposing view.

- I couldn't care less whether people 'take me up on my trades.' And if I had any malicious intent, such as wanting to pump and dump any part of the market, zhedge is the last place I'd come - people here are too discerning. I'd be giving interviews to CNBC and the FT. For example, Blue Horseshoe apparently loves RIMM at the moment...

Thu, 01/19/2012 - 14:43 | 2078646 ucsbcanuck
ucsbcanuck's picture

Not interested in your penis or appearance, just in whether you're trying to screw us. You could be Martian and with a 1-in penis for all I care, I'm just being skeptical. The fact that:

- you aren't trying to convince people that your trades are THE thing

- you do want to inform other people's opinions, and

- you don't really care if they take opposing views to you

means that at the very least you are not being malicious.

Honestly speaking, approaching this using critical thinking - it's hard to tell whether or not you're on the right path. There's just so many things we don't know about - even more so than the usual. And even if your logic is 100% correct - doesn't mean that the market behaves as you think it will.

I mean as Tyler pointed out EK went up 128% from Jan 6 - Jan 11. How did that even happen? Everyone and their mum knew that EK was preetty shaky back in Nov.

I do agree with your point on "what is" rather than analysis of fundamentals. Over and over again, we've seen enough evidence to back that up - dot-com boom, housing bubble, China bubble etc. Fundamentals make sense long-term, but short-term the market is driven by irrationality and the herd mentality.


Thu, 01/19/2012 - 16:57 | 2079182 ebworthen
ebworthen's picture


Thanks for the posts.

You have a point, hard to fight the FED as they have unlimited funds.

With a complicit pool of politicians and big money pig men riding shotgun who knows what could happen.

What should happen, and conditions that should occur, have not been extant since 2008.

Even people who were involved in the markets for years had their perception of reality and what was possible turned upside down and inside out. 

Reference Jeff Macke's meltdown on CNBC before he and Ratigan had to find other digs in favor of market/speculation pumpers like Melissa Lee.

What shouldn't be is.  Who knows where it ends.


Wed, 01/18/2012 - 23:21 | 2076864 Dingleberry
Dingleberry's picture

CRIME PAYS. That's why you buy those kinda stocks. Look at the endless "settlements" that drug companies, bankers, tobacco, and on and on pay out. And they fuckin still print money hand over fist!!!  We live in a kleptocracy. Deal with it. And invest accordingly.

Thu, 01/19/2012 - 00:53 | 2077044 ucsbcanuck
ucsbcanuck's picture

Bought LMT in 2002, sold in 2006 after making 60%. Made great amounts on RTN as well. Military industrial complex all the way baby!

Thu, 01/19/2012 - 00:04 | 2076959 syzygy_g
syzygy_g's picture

I think the central planners want to punish those pesky shorters.

Thu, 01/19/2012 - 16:36 | 2079140 ebworthen
ebworthen's picture

"Dogs of the Dow"


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