🧸🔐 Bears are Winning the Battle
Hey everyone! Welcome back to the Hump Days newsletter! This week we saw…
Juul’s Vaping Products Ordered Off the U.S. Market by FDA (Bloomberg)
Amazon debuts a fully autonomous warehouse robot (TechCrunch)
A Ukranian tech startup that uses AI to paint war art… (TechCrunch)
Netflix confirms partnership talks for ad-supported service (WSJ)
Elon Musk calls Tesla’s new factories in Texas and Germany ‘gigantic money furnaces’ (WSJ)
Solana launches a web3-focused smartphone (TechCrunch)
Short Selling Is Finally Paying Off…
In 2021, we all know what happened to short sellers back then. They were taking on massive losses and some funds actually blew up and were never able to recover. However, in 2022, short sellers are having a field day in the markets, specifically in the world of crypto.
According to S3, a tech and data-analytics firm, short sellers in crypto stocks have gained an average of 130% in 2022. Meanwhile, shorts against the automobile and software sectors have returned about 50%, while retailing, media and entertainment have seen gains of about 46% each. This comes at a time when most investors have suffered massive losses during one of the fastest market declines ever.
Despite most stocks being close to their 52 week lows, the short selling frenzy continues on. Hedge funds tracked by Goldman Sachs doubled down on their short positions, with the dollar amount of short sales hitting the highest level since the 2008 financial crisis. Similar trends were found at JPMorgan’s prime broker units, where the amount of added shorts was more than three standard deviation above the historic average.
For these hedge funds and other short sellers, the biggest gains have been in shorting crypto-related stocks. Year-to-date, Coinbase, MicroStrategy, and others are down over 60%.
S3 Partners found that short-sellers in crypto stocks have gained almost $4 billion in profits just this year. During the recent freefall in the crypto markets, short interest spiked even higher, most notably in the company Coinbase.
With short-selling continuing to grow in popularity, it could mean that we are potentially reaching a bottom in the markets. As JPMorgan recently wrote in a research note, “It raises the question of what might happen if we were to get a more meaningful rebound and breakout from the market downtrend… We could be closer to the lows than we were a few days ago”.
With such massive shorting, we could see shorts covering eventually covering their positions (backwards, I know) which should give stocks a nice boost. However, it’s still too early to call an “all clear” just yet.
Chart of the Week
According to SocGen, “U.S. technology stocks have fallen by 10 p/e points since the start of the year, while earnings-per-share have increased by 9% so far”.
Valuations are getting cheaper and cheaper, however the big concern keeping markets down is a potential recession which would cause further pain for most sectors of the market.
While the short-term uncertainty for the markets still looms over us, this is likely a good time to add long-term. Look to dollar cost average as we continue to move flat or downwards with the way the tech sector is looking if you’re bullish.