Goldman Prime: Yesterday Saw The Biggest Short Squeeze And Hedge Funds Selling In 14 Months
In our market wrap yesterday, we observed that the most unique feature about yesterday’s sharp move was that it was yet another marketwide short squeeze.
Ok fine, but surely investors in single stocks also piled into the meltup on the long side?
Well, not really: according to Goldman’s Vincent Lim, the bank’s Prime desk (unlike Credit Suisse, Goldman will be retaining this critical division which, if noting else, provides unique insight into what the bank’s hedge fund clients are doing) has seen clients unwind risk (i.e., sell) single names for a 3rd straight day, resulting in the largest $ de-grossing activity in 14 months, since Sept 2020 (-1.0 SDs), driven by short covers and to a lesser extent long sales (1.4 to 1). Goldman notes that excluding MTM changes, US single name shorts on the Goldman Prime book decreased -0.8% yesterday (-1.6% week/week).
So big was the squeeze that shorts in the constituents of the Goldman “Most Shorted basket” (GSCBMSAL) collectively decreased -9.7% yesterday (-11.3% week/week)! This, as 29 of the 50 GS Most Short basket constituents saw net covering on the GS Prime book yesterday. In $ terms, the covering in the GSCBMSAL constituents collectively made up nearly 50% of the covering across the entire US Single Name short book.
While single-name stocks saw a furious derisiking, flows in Macro Products (Index and ETF combined) were risk-on driven by long buys outpacing short sales 4 to 1. 8 of 11 sectors saw de-grossing activity, led in $ terms by Consumer Disc (short covers > long sales), Info Tech (long sales), Industrials (short covers > long sales), Staples (long sales > short covers), and Financials (long sales). Energy, Real Estate, and Utilities were the only sectors that saw increased gross trading flows.
Putting it all together, overall Book Gross leverage fell -0.2 pts yesterday and -1.7 pts week/week to 235.2% (lowest since February, 13th percentile vs. the past year), and down 1.5 pts (-8.8 pts week/week) excl. MTM. Meanwhile, fundamental LS Gross leverage rose +0.7 pts yesterday and +1.5 pts week/week to 178.8% (59th percentile vs. the past year).
Of course, with shorts freaking out and covering into yesterday’s meltup – which allowed hedge funds to sell furiously into the meltup to fresh all time highs – today was are getting the opposite move as bears reshort, adding to marketwide gross exposure.
Thu, 11/04/2021 – 12:07