(ZEROHEDGE) – With Gamestop stock in freefall, down more than 85% from its all time highs and dragging many of the other most shorted “meme” stocks that soared at the end of January, the question on every trader’s mind is whether the squeeze (and hedge fund deleveraging) is finally over and is it safe to go back to shorting again?
Addressing this point, JPM strategists published a report overnight in which they note that the most common questions people are asking are “does the de-risking persist?” or “what do we expect going forward?” As JPM explains, it seems likely that we’re through most of the extreme deleveraging, especially among L/S funds, given how much L/S funds de-grossed last week and how negative alpha spreads were. Validating this point, the strategists point to the improving HF returns that are getting reported in the press so far which suggest that there were bright spots within L/S last month, while other strategies generally held up better than L/S. Thus, “the performance risk appears to have been relatively contained despite a couple days of broader pain last week” according to JPM.
That said, not everything has gone right back to the way it was. JPM cautions that while we’ve seen HFs add back to shorts among High SI stocks early this week, “the additions pale in comparison to the large reductions last week.” Among Equity L/S funds the % of the North American short book in ETFs has jumped to nearly 18% from under 14% just earlier last month, but it remains below prior highs in recent years. To JPM “this suggests that there’s still room to shift further into ETFs.”
