The Next Squeeze: Hedge Funds Sprint Into Energy Shorts Just As Oil Hits 2023 Highs

Three weeks ago, we pointed out that amid the market's relentless march higher and eventual peak just over 4,600 at the start of August, hedge funds were suffering a crushing P&L drawdown as a result of their short books dramatically outperforming their longs.

Ironically, it was just around August 1 as the S&P finally peaked, that the squeeze fever in the hedge fund pair trade "crucible" finally broke as the closely watched portfolio in question (HF VIP longs less most popular shorts) rebounded from 6 month lows, as shorts had finally capitulated and panic covered (with even investment icons like Dan Loeb saying he had cut his shorts to avoid being trapped) and there were no more left to squeeze. The fact that this coincided with the market's highs, puts into doubt the entire recent rally which far from fundamentally driven, appears to have been just the latest mega short squeeze as the ramp of most shorted names ended up pushing the broader market higher.