Data show that US retail investors are once again trying to battle against Wall Street hedge funds. The "short squeeze of the century" in 2021 is still fresh in the minds of US retail investors and Wall Street short sellers. Now, with the market betting on the Fed rate hike cycle to end, the hedge funds are once again in danger.
Outperforming meme stocks in 2023
Last week's short squeeze followed a post-Fed rally. The tech-heavy $NASDAQ(.IXIC)$ surged 3.25% on Thursday - its biggest one-day jump in over two months - led by over 20% surges in orthodontic company $Align Technology(ALGN)$ Technology and $Meta Platforms, Inc.(META)$ .
In addition to last week's rally, meme stocks outperforms the market so far.
$Carvana Co.(CVNA)$, an e-commerce platform for buying and selling used cars in US, has rose 190% in 2023.
Retail investors' pick in 2022 - $Bed Bath & Beyond(BBBY)$ rose more than 153% in the year; home furnishings e-commerce provider $Wayfair(W)$ rose more than 104% in the year; $AMC Entertainment(AMC)$ has risen more than 50% in the year; car company $Faraday Future Intelligent Electric Inc.(FFIE)$ rose over 190% YTD.
$ROUNDHILL MEME ETF(MEME)$ , tracking "meme stocks", gained cumulatively 40% in the year, far exceeding the performance of $S&P 500(.SPX)$ over the same period.
comparison of meme stocks' performance and spx.
Short covering of hedge funds to an all-time-high
US hedge fund short covering on Feb. 3 was the largest since November 2015, surpassing the retail frenzy of January 2021, according to the latest data from Goldman Sach. The largest short positions held by hedge funds were in industrials and information technology companies, the Goldman note said.
Goldman Sachs reported that quantitative hedge funds lost about 1.3% on Feb. 2, the heaviest day in more than six months. US software stocks skyrocketed higher, driven by continued short-covering by hedge funds.
And behind this is that US retail investors are frantically buying US tech stocks, especially stocks that were heavily shorted by hedge funds.
JPMorgan Chase's latest measurements based on publicly available data from exchanges show that
In late January 2023, retail equity and ETF orders accounted for 23% of total market volume, even higher than the all-time record (22%) set during the short-selling boom of 2021.
The signs of retail investors "shorting" hedge funds in the US are even more evident in specific stocks, as retail investors in US stocks have gone on a buying spree in Carvana since 2023, with the cumulative increase in its share price reaching 190% over the year.
The US used-car platform Carvana, for example, was heavily shorted by Wall Street institutions. According to IHS Markit data, institutions held a short position in Carvana as a percentage of shares outstanding at one point close to 60%.
But Carvana's fundamentals have not changed, and it is even facing a huge debt crisis and is on the verge of bankruptcy.
[Topic]
How do you view the ongoing short squeeze: the rally is over or it's just a begining?
Do you hold quality companies like $Apple(AAPL)$ and $Tesla Motors(TSLA)$ or meme stocks like $Carvana Co.(CVNA)$ and $Bed Bath & Beyond(BBBY)$ ?
Comments