"Lots Of Wrong Way Action": Hedge Fund Favorites Crushed By Most Shorted Names

Earlier this weekend, we excerpted from a Goldman note discussing that most institutional funds had missed the rally and were facing a key question: chase or wait for the pullback. A separate report - the must read Weekly Rundown report that covers the key events across all Goldman trading desks, including the all-important Prime Brokerage - appears to have answered this question: after selling and shorting all of April (when retail investors were buying anything that wasn't nailed down), hedge funds are now in all-out panic buying mode, and in the past week, hedge funds net bought US equities for a 5th straight week, driven by risk-on flows with long buys outpacing short sales ~3 to 1.

This growing capitulation to chase upside momentum was manifested most clearly in US Fundamental Long/Short  gross leverage, which just a few weeks ago hit a record high of 215%, and which in the past week fell -2.5%, the largest weekly decrease since early April, to 210.6% (which is still a 97th percentile 3-year), while US Fundamental L/S Net leverage rose for a 4th straight week by +0.9% to 51.2% (38th percentile 3-year). Just as importantly, the Fundamental long/short ratio - which just two months ago hit a near record low and which we said was the bottom and it's time to start buying - rose +1.5% to 1.642 (8th percentile three-year).