Merchants work on the ground on the New York Stock Exchange on April 22, 2025.
Brendan McDermid | Reuters
A key strength at the center of the two -day massive rally on the stock market is the frantic behavior of open sellers covering their losses.
The hell seller of hedge funds recently added more downgraded bets in unique actions and titles related to macro developments after the drop in early April triggered by the price deployment of President Donald Trump and the brutality of 90 -day break, according to Goldman Sachs brokerage data.
The increase in short positions on the market has created an environment subject to dramatic covers due to this artificial purchase force. An uncovered seller borrows an asset and sells it quickly. When the warranty decreases price, they buy it at a lower cost to take advantage of the difference.
He can turn against the stay and the open sellers are suddenly obliged to buy their actions borrowed quickly to limit their losses, a phenomenon of Wall Street known as the short pressure.
If the market seemed to be rallying on any real tangible news on Tuesday, other than certain comments on China and the Federal Reserve by Trump, credit this phenomenon.
“The risk of compression is real today,” John Flood, Director General of Goldman Sachs said on Wednesday in an early note to customers.
The flood echoed the feeling of many traders who declared that the market seemed to be wrapped for a rescue rally because so many hedge funds were taken from the wrong side of this bet.
S&P 500
A short cover was exposed Tuesday and Wednesday when the actions approached signs of softening the tensions on trade, even if no concrete transaction has yet been concluded. The Treasury Secretary, Scott Bessent, said on Wednesday “there is an opportunity for a big deal here” on trade issues between the United States and China.
On Wednesday, the Dow Jones Industrial Average jumped 30 points at its top after a gain of 1,000 points to end a four -day sequence. The S&P 500 has increased by 3.5% to date after consecutive victory sessions.
Trump’s rapid reversal on the president of the federal reserve, Jerome Powell, has also fueled positive feeling. Trump said that he had “no intention” to dismiss Powell after saying that “the termination of the Central Bank chief cannot come quickly enough” a few days ago.
But the rally was quickly, with the Dow Up only 500 points at noon on Wednesday. The short boost of obvious discoloration at open could be a reason for the withdrawal of the summits.
In addition, Goldman’s Flood said that hedge funds have not passed from short-cover to pure and simple purchase on the long side, a sign that the rally has no high conviction.
“I watch closely to see if the HF covers in macro and simple start to evolve towards long purchases,” said Flood. “You also want to see longer investors intervene and buy names that they consider as fair value. We have not yet seen any of this type of action.”
