“LIKE THE DOT-COM BUBBLE”: Monster stock market rally & short squeeze likely before year end

Institutional investors are piling into short positions, predicting the 2023 stock market rally is about to unravel.

For the week beginning Monday, September 18, Goldman Sachs prime brokerage data shows the largest increase in global hedge fund short positions since the March 2020 stock market crash.

Goldman Sachs says the amount of shorting in US equities since mid-August is the largest in six months and ranks in the 98th percentile vs. the past decade.

And against that background, the level of short gamma from put option bets is extraordinary.

It’s an environment that is ripe for the mother of all short squeezes, according to prominent market expert, Charles-Henry Monchau from Syz Group, a leading private bank and asset manager.

Stock market rally
Charles-Henry Monchau (Linkedin)

“Dealers have been forced to sell deltas as we have moved lower,” says Monchau.

“This has pressured the market, but we need to keep in mind that gamma works both ways, so a possible bounce from here would force dealers to buy back all that delta they sold recently.”

Stock market rally akin to late 1999

From the beginning of the fourth quarter of 1999, to the peak of the dot-com bubble in March 2000, the NASDAQ gained over 70%.

There are some distinct similarities between that period and the stock market today.

There was a large volume of short positions at the time, and the period-over-period NASDAQ chart is remarkably similar.

Stock market rally
Chart from Charles-Henry Monchau (Linkedin)

Charles-Henry Monchau says the 1999 NASDAQ analogy chart “isn’t perfect”, but he adds “given the amount of shorting by hedge funds and short gamma selling by dealers, a squeeze in Q4 is a possibility.”

Q4 is historically the strongest quarter of the year for NASDAQ performance.

The top 10 most shorted stocks in the US

CompanyShort Interest (at 31/08/23)FloatFloat Shorted
Novavax Inc.40,085,65787,565,84345.78%
Fisker Inc.81,742,722191,796,11142.62%
Carvana Co. Cl A33,988,74184,556,94140.20%
Edible Garden AG Inc.916,2802,347,76739.03%
Axcella Health Inc.396,5611,064,27637.26%
Upstart Holdings Inc.26,137,30171,123,76736.75%
C3.ai Inc.35,908,31898,897,21136.31%
Beyond Meat Inc.21,975,15660,638,48236.24%
ProKidney Corp.6,238,30817,258,99136.15%
Groupon Inc.5,445,55915,959,31634.12%
Data used: MarketWatch

David Hunter: Stock market rally entering final stages of parabolic phase

Prominent Wall Street veteran David Hunter is one market analyst who predicted this year’s stock market rally.

However, he says there’s more to come.

“Some people think we’re in the melt up, I keep saying ‘no, the melt up hasn’t even hit yet,” he said in an interview with podcaster Natalie Brunell.

“There’s really a lot of skepticism about this rally, and rightfully so – the valuations are high historically – but I would say we’re in the process of moving towards the melt up – the melt up is what I call the final stage the parabolic stage.

Hunter says that final parabolic stage will occur after the S&P500 breaks above its record high of 4796.

“I believe once we get to new highs above 4800 is probably where you’re going to see the the slopes steeping even further… You’ll be you know… up, up, up, up, and people have to chase.

His ultimate projection is that the S&P500 hits “6 or 7 thousand” before a major crash.