Goldman Prime: Tuesday Was The Biggest Short Squeeze In 6 Months

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by Tyler Durden
Thursday, Dec 09, 2021 - 10:20 PM

Over the weekend, when the market mood was close to suicidal due to the late Friday selloff over Omicron fears, we published a very contrarian take from Goldman's trading desk (never to be confused with Goldman's sellside research which is, sadly, usually quite worthless) and which explained several reasons why the market would rip, chief among them being a huge short squeeze, which is why we urged readers to take the opposite side of the prevailing doom and gloom. One day later, looking at the latest Goldman Prime data, we doubled down on this call, and said late on Monday to "brace for a faceripping short squeeze."

Sure enough, Tuesday, December 7 saw markets explode higher with the S&P storming higher by more than 100 points and closing just shy of 4,700 and not too far off its all time high, a dynamic we laid out early on Tuesday in "REKT" - Stocks Storming Higher On Massive Hedge Fund Short Squeeze".

And while Tuesday may seem like ancient history now, some two days later, when the market mood is decidedly more sour following today's Nasdaq pounding, overnight Goldman prime confirmed what we said, writing on December 7 saw the "largest 1-day global net buying in 6 months driven by short covers" with US equities "net bought for a second straight day as managers reduced Macro shorts [zh: i.e. covered] and rotated back to Software stocks."

And the punchline from GS Prime's note, which confirms what we said, namely that Tuesday's "global net buying was driven mainly by short covers, which made up more than 90% of the $ activity."

The catalyst behind the furious "face-ripping" squeeze in question was not discussed, but one has to only think to what we said on Monday  in "Stocks Soar After Gartman Says "A Bear Market Is Required" And "Stocks Are Headed Lower"" to have a pretty good idea of what happened.

While of secondary importance, here is a drill down into Tuesday's activity:

  • Macro Products (Index and ETF combined) made up 80% the overall $ net buying (+1.0 SDs), driven entirely by short covers
  • US ETF shorts on the GS Prime book decreased for a second straight day by 2.8% (still up 1.8% week/week), the largest net covering since mid-November.
  • Single Names were modestly net bought (+0.2 SDs), amid risk-on flows with long buys outpacing short sales 1.4 to 1. Info Tech, Real Estate, and Utilities were the most $ net bought sectors, while Comm Svcs, Industrials, and Staples were the most $ net sold.
  • Info Tech stocks were net bought for the first time in 7 days, driven by long buys outpacing short sales 6 to 1.
    • In $ terms, yesterday’s net buying in US Info Tech was the largest since July (+1.3 SDs).
    • IT Services and Software were the most net bought subsectors driven by long buys, while Semis & Semi Equip and Comm Equip were modestly net sold driven by short sales .
    • A fter being heavily net sold in 5 of the previous 6 days, constituents of the High Multiple Software basket (GSCBSF8X) collectively saw the largest 1-day $ net buying in the past three months, driven by long buys and short covers (2.8 to 1), and made up more than 70% of the $ net buying in Info Tech yesterday.
    • US Software long/short ratio now stands at 5.06, which is -11% below the record level of 5.69 seen in early November (in the 71st percentile vs. the past year and in the 94th percentile vs. the past five years).
  • Most $ Net Bought Industries –  IT Services, Automobiles, Software, Internet & Direct Marketing Retail, REITs, Capital Markets, Biotech, Pharmaceuticals
  • Most $ Net Sold Industries – Specialty Retail, Health Care Providers & Svcs, Electrical Equip, Entertainment, Hotels, Restaurants & Leisure, Media, Food Products, Oil, Gas & Consumable Fuels

And while the mystery behind Tuesday's insatiable buying is now clear, the big question is whether today's weakness in the Nasdaq was a fresh wave of shorts entering the market, and just how furious will be tomorrow's squeeze higher if the CPI misses the already sky-high expectations.