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Old 01-02-2021, 15:35
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Default Re: Tickmill UK Fundamental Analysis

Market short-squeeze is likely to continue keeping broad market under pressure


Asian and European stock indices rose on Monday, while silver surged nearly 10% (5-month high) as investors on social media and chatrooms have apparently set their choice on the precious metal for another pump. The rest of the precious metals complex posted much more modest gains.

The global stock index MSCI All-Country World lost 3.6% last week, but recovered 0.5% on Monday. However, it is still too early to take the rebound as a signal of reversal: inspired by recent success in GME and AMC, retail investors will likely continue raids on outsider shares, devastating short sellers. Goldman Sachs said that ongoing short squeeze was the biggest in 25 years with most shorted stocks almost doubled in just 3 months. Top-50 stocks in Russel 2000 (index small-cap firms) by volume of short positions in open interest rose by almost 60%:



These market trends suggest that the companies combing high volume of short positions in open interest with small market cap, increasingly become the targets for a pump driven by amateur investors, forcing market participants which werenít lucky enough to be on the short side to seriously worry. According to the latest data, hedge fund Melvin Capital, the most famous victim of recent short squeeze, lost about $ 7 billion last week. In January, the fund's assets fell by more than half. Another financial institution, Maplelane Capital, was reported by the WSJ to suffer a 45% loss in January (it managed $ 3.5 billion).

According to GS, attacks on the short sellers prompted hedge funds to carry out massive deleveraging last week, pushing equities lower across the globe. However, given that the short-squeeze strategy hasnít experienced massive failure so far, itís likely to continue maintain the risk of further downside in the markets.

It should be well understood that the losses of hedge funds and associated liquidation of positions in stocks market favorites (which pulls broad indices down), is only one mechanism of development of correction. The second channel of impact is the wave of withdrawal of shabby deposits from funds, which is apparently gaining momentum. To meet withdrawal requests, hedge funds will be forced to sell assets increasing pressure on the broad market.

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