Oct 14 Reuters - Institutional investors have been paring their riskier bets on most of the most traded stock in response to mounting appetites for bearish bets, according to strategists at Vanda Research.
Short sells are bearish investors who borrow stocks and aim to buy them back when the price falls to cover the loan and pocket the difference.
On Wednesday, short stocks were rallied and short sellers were forced to leave bearish bets to curtail their losses - a situation known as a short squeeze.
We believe institutional investors were forced to cover their shorts, either because they were de-comforting or because they feared that a rebound in risk sentiment could inflict pain on their short book, Vanda strategists Ben Onatibia and Giacomo Pierantoni said about Wednesday's session.
Some of the top U.S. stocks have been shorted by long selling on, according to the latest data from S 3 Partners.
The Top short-sales, Big 5 Sporting Goods, sold short with 41.5% of its float, had risen almost 4% in the last three sessions but was down 0.5% on Thursday. Altimeter Growth Corp with 36% of its shares less traded was rallying 4% on Thursday with a sharp spike higher in trading volume.
Blink Charging Co, with 36% of its floating float shorted, was down 2.5% Thursday after rising 8% in the previous three sessions while WorkHorse Group fell 2.5% Thursday after rising 10.6% in the last two sessions.
Meanwhile, Wall Street's three major indexes gained more than 1% on Thursday after also up ground Wednesday.
Highly shorted names also got high retail mentions on the Reddit site WallStreetBets, said Vanda strategists, noting that comments on such stocks on the forum was very close to the daily average in September and October.
Retail investors had nothing to do with the short squeeze, however. Individual purchases of these stocks on Wednesday were a lot smaller than most days in September and October.
On Reddit.com, an investor forum on WallStreetBets, some commentators were pointing out that it was a bearish session for rough investors on Wednesday.
There somewhere is a bear crying said one WallStreetBets member wrote.
Vanda also argued that if the short squeeze continues in stocks it could eventually lure retail investors to abandon crypto investments as they say rotations between those two asset classes are very common.