From a week after the election, the most-shorted names [3] in the major indices have been the massive outperformers and drivers of this market exuberance (+16.4% versus 8.4% market). That story has not stopped as 2013 has seen the squeeze continue as the year-end strategy of piling into the most-shorted names has worked [3]. From the opening levels on January 2nd (with today seeing even more divergence), the most-shorted Russell 2000 names are dramatically outperforming. It would appear, as Bloomberg notes [4] in its recent article on 2012's most-hated companies' outperformance, that "It's not just hard to be short, it is painful." Of course, they also note one manager's view that "The risk is that if this market rally has been based on short covering and that was all it was, then there’s no further money following, the rally is then either dead or not sustainable." Especially with net spec longs at near-record highs, this has unsustainability written all over it.
Since a week after the election, the most-shorted names in the US equity market have more than doubled the markets' performance!!
[5]
Though, arguably, post-QE3 there could be some more room for squeezes (as they remain 'winners' as it were, relative to the market)...
[6]
And that performance remains in place in 2013 - with today quite notably divergent...
[7]
Charts: Bloomberg