Stock Market Short Bets Near Five-Year Extreme, Goldman Sachs Warns Hedge Funds Face Potential Short Squeeze Storm

Odaily Report: Since October, global hedge funds have accelerated the build-up of short positions, with bearish bets approaching a five-year historical peak. Goldman Sachs Prime Brokerage data shows that the ratio of short trades to long buys has reached approximately 5 to 1. Should a catalyst for a rebound in market sentiment emerge, highly crowded short positions could trigger a violent short squeeze.

Goldman Sachs Prime Brokerage books show that its global equity short leverage ratio has now risen to the 99th percentile of the past five years. Although gross leverage has recovered somewhat, the net leverage of fundamental long/short funds—a measure of the extent to which longs exceed shorts—has fallen to a near three-year low.