Traders at banking giant Goldman Sachs say the massive short positions in the market could serve as jet fuel for an abrupt upside move.
In a note to clients, Goldman’s trading desk team says investors looking to place bearish bets may be late to the party, as short positions have already piled up just as selling pressure fades, Bloomberg reports.
Data shows that Commodity Trading Advisors (CTAs), which are large systematic funds, have sold $55 billion in shares this month and have accumulated $18.4 billion in short positions.
Says Goldman’s trading desk:
“This market requires investors to stay hedged and nimble as new information hits the tape, but we caution against flipping short as current positioning is prone to squeeze risk amid potential resolution headlines… [Selling pressure is] almost over (barring any major shock on the macro front) and the asymmetry lies to the upside as conditions stand.”
A short squeeze happens when a positive development triggers a market rally, forcing short sellers to buy stocks to cover their positions and limit losses. As the market goes higher, more short sellers are forced to liquidate their positions, fueling further rallies.
Goldman also says that about $14 billion in month-end pension flows could buoy the market in an environment where retail investors have only trimmed allocations by just 1%.
“While uncertainty persists, month-end dynamics should clear some of the obstacles for US equities and pave the way for a cleaner path into April.”
Last week, the popular trading platform Interactive Brokers said retail investors are heavily buying dips, fearing that the market could suddenly reverse and leave them behind.
Disclaimer: Opinions expressed at CapitalAI Daily are not investment advice. Investors should do their own due diligence before making any decisions involving securities, cryptocurrencies, or digital assets. Your transfers and trades are at your own risk, and any losses you may incur are your responsibility. CapitalAI Daily does not recommend the buying or selling of any assets, nor is CapitalAI Daily an investment advisor. See our Editorial Standards and Terms of Use.