Hedge-Fund Short Covering Seen as Big Driver of Nasdaq Rally
- Those funds were forced to buy back stocks to curb losses
- Goldman basket of most-shorted tech shares up 7% in two days
This article is for subscribers only.
The recent rally in the Nasdaq 100 has been referred to as an oversold bounce aided by a drop in bond yields. Beneath the surface, however, the surge was largely driven by hedge funds who were forced to pare their bearish bets to limit losses -- rather than genuine interest.
While those funds were net buyers of stocks for a fifth straight day, short covering outpaced long sales by a ratio of 4 to 1 on Tuesday, according to data from Goldman Sachs Group Inc.’s prime brokerage unit. As the spike in the tech-heavy gauge didn’t reflect appetite for risk, some analysts say those gains would likely be short-lived.