Short squeeze seen lifting S&P 500 further – Citi

FILE PHOTO: New York Stock Exchange opens during COVID-19
FILE PHOTO: Traders wearing masks work, on the first day of in person trading since the closure during the outbreak of the coronavirus disease (COVID-19) on the floor at the New York Stock Exchange (NYSE) in New York, U.S., May 26, 2020. REUTERS/Brendan McDermid/File Photo

February 9, 2021

(Reuters) – A squeeze of short positions looks set to drive a further rally in the S&P 500 index, Citi said, as hopes for big fiscal stimulus drove the U.S. equity benchmark to new record highs.

Nearly $10 billion worth of shorts were unwound last week on the S&P 500, the largest rate since April, and $21 billion shorts still remain and are in loss, analysts at Citi said.

“There is potential for further short squeezes supporting market gains for another week or two given the size of the remaining short base,” they wrote in a report late on Monday, based on data on the exchange traded futures.

They also said that at 4,000 points holders of long positions on the index could be tempted to take profit, potentially holding back the market in the short term.

The S&P 500 is up more than 5% so far in February and on Monday it closed at a new all time peak of 3,915 points.

The surge comes after a social media-driven retail trading frenzy targeted heavily shorted stocks, forcing big hedge funds to close their bearish bets globally.

(Reporting by Danilo Masoni in MILAN; editing by Thyagaraju Adinarayan)