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Shorts Are Covering Even Faster than Jan ’21

February 6, 2023 tremendousblog Leave a comment

Short sellers are running for the exits as markets rally. Short covering has hit its highest level in over 7 years, according to a Financial Times report:

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Equity markets have risen sharply so far this year, led by many of the speculative stocks that were clobbered hardest during 2022’s global sell-off. Many of the funds that profited from the rout have found themselves poorly positioned for the rebound, which has recently accelerated as investors sensed that interest rates were close to peaking in many major economies.

The resulting flurry of short covering — when investors buy back stocks they had been betting against to limit their losses — was the largest since November 2015, according to a Goldman Sachs note to clients seen by the Financial Times.

Short sellers tend to pile into the same, heavily shorted stocks. When they rush to close their positions, this can cause a short squeeze.

A short squeeze happens when many short sellers all try to buy at once to close their positions. This can cause a stock’s price to skyrocket.

Short squeezes in stocks like AMC Entertainment Holdings and GameStop in 2021 took down hedge funds including Melvin Capital. Today, those same stocks are some of the year’s best performers.

Despite big increases in heavily shorted stocks, short sellers still have massive exposure. AMC’s short interest has dipped only slightly, remaining at a lofty 29%.

This indicates such stocks could have a lot of room to run. Short sellers will have to buy many more shares to close out their positions.

Shorts are also facing some of the heaviest retail buying in history. Retail buying hit an all-time high of 23% of all stock buys, according to a recent Forbes report.

Retail investors are the biggest buyers of many heavily shorted stocks, including AMC and GameStop.

Over a month ago, I predicted a market rally in 2023. I guess the hedge funds missed that post. 🙂

If the Fed remains dovish, I expect many more losses for short sellers. 2023’s short squeezes could make 2021 look almost quaint.

What do you think the future holds for short sellers? Leave a comment at the bottom and let me know!

More on markets:

As Fed Rates Peak, Are Markets Ready to Take Off?

SEC Refuses to Address Massive Fraud in Markets

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SEC Demands Citadel Employee Cell Phone Records

February 3, 2023 tremendousblog 2 Comments

The Securities and Exchange Commission has ordered Citadel and several other financial firms to produce employee cell phone records.

From a new report in Bloomberg:

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The Securities and Exchange Commission recently asked Steve Cohen’s Point72 Asset Management, Ken Griffin’s Citadel and several other firms to search through the devices for evidence of business dealings on unapproved channels, according to people familiar with the matter who asked not to be identified discussing the private requests. The SEC is also probing the practices of brokerages, money managers and private equity firms.

Representatives for Point72 and Citadel declined to comment. Neither firm has been accused of wrongdoing.

By law, investment firms must retain all business communications. But sometimes, Wall Street traders would rather no one hears their conversation.

So, many turn to encrypted messaging apps like WhatsApp and Signal. Using their personal phones, traders can evade the scrutiny of their employer, as well as regulators.

What might be in those WhatsApp messages? Time will tell, but violations could include front-running clients’ trades or naked short selling.

The Financial Industry Regulatory Authority (Finra) has fined Citadel for front running clients in the past. Citadel has also received subpoenas in a probe of short sellers.

The SEC has already levied over $1 billion in fines on banks for failing to maintain records. But unless those fines get a lot bigger, nothing will change.

Citadel made $16 billion in profit last year. Any fine in the millions will be nothing more than a speeding ticket.

I urge the SEC to find out what is being hidden in these messages. And when they do, the penalty should sting, big time.

What do you think the SEC will find? Leave a comment and let me know!

Have a great weekend everyone!

More on markets:

Citadel’s Illegal Trades — The Tip of the Iceberg?

SEC Refuses to Address Massive Fraud in Markets

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SEC Refuses to Address Massive Fraud in Markets

January 31, 2023 tremendousblog 14 Comments

The Securities and Exchange Commission (SEC) just released its top enforcement priorities for the year. Rather than dig into systemic fraud in our markets, they’ll be regulating….confetti?

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According to a report out this morning on Reuters, the SEC will be focusing on:

”…behavioral prompts, differential marketing, game-like features…and other design elements or features designed to engage with retail investors on digital platforms.”

In plain English, they’re talking about the confetti some stock trading apps display when you make a trade. But that’s not all.

The SEC will also be regulating how funds can use certain words:

…funds with keywords such as “green,” “sustainable,” “ethical,” or “socially responsible” in their names will have to reflect an emphasis on these areas through their investing choices.

As if investors couldn’t simply look at the holdings and see if Exxon Mobil is there or not!

Combatting widespread financial fraud is nowhere in the SEC’s agenda.

Illegal naked short selling pervades our markets. Millions upon millions of trades fail to clear each day, especially in heavily shorted stocks like AMC Entertainment Holdings and GameStop.

But the SEC won’t be looking into that.

Despite $8 billion in losses on FTX, cryptocurrency regulation won’t be a focus for the SEC this year either. Why bother with that when the SEC could be requiring “a summary of registrants’ human capital resources,” whatever that is?

It’s no wonder author Jesse Eisinger called the feds “the chickensh*t club.”

The SEC is a toothless regulator. It busies itself with make-work, avoiding the real issues plaguing our markets.

Gary Gensler and the SEC need to start going after the real criminals.

What do you think of SEC enforcement? Leave a comment at the bottom and let me know!

More on markets:

Short Sellers Down $81 Billion in 2023

Citadel’s Illegal Trades — The Tip of the Iceberg?

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Short Sellers Down $81 Billion in 2023

January 30, 2023 tremendousblog 2 Comments

Well, that was fast! With 2023 less than a month old, short sellers have already lost $81 billion.

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Many are running for the exits. From a new report from The Wall Street Journal:

Short sellers who have incurred hefty losses are actively trimming their positions, said Ihor Dusaniwsky, managing director of predictive analytics at S3 Partners. Investors betting against stocks have racked up $81 billion of mark-to-market losses on short positions this month through Thursday after accumulating $300 billion in gains in 2022, Mr. Dusaniwsky said.

Markets have rallied this year, with meme stocks leading the way. As short sellers race to close their positions, their losses are likely to grow:

Signs that inflation is cooling have stoked bets among investors that the Federal Reserve will pivot from raising interest rates to cutting them as soon as the second half of the year. That has helped risky assets across the board rise. Especially risky corners of the market, such as stocks with high short interest, have rallied even more. Analysts say that has likely forced short sellers to close out bearish positions to cut their losses—resulting in what is known on Wall Street as a short squeeze.

Some of the most heavily shorted stocks have been among the best performers so far this year.

Meme stocks like AMC Entertainment Holdings, GameStop, and Bed Bath & Beyond are all up over 20%. The broader S&P 500 is up 6% for the year so far.

In addition to huge market losses, short sellers are also paying stratospheric interest rates to borrow shares. Rates to borrow AMC shares have ranged between 20% and over 100% per year in recent weeks.

It’s no wonder that some short sellers may be resorting to illegal tactics. There is evidence of widespread naked short selling in some heavily shorted stocks.

Common and preferred shares of AMC have seen millions of fails to deliver. These failed trades often occur when a short seller sells stock without borrowing it.

This is called naked short selling and it’s illegal under federal law. It’s also a powerful way to push down a stock’s price without paying any interest.

The coming months could push many short sellers to the brink.

A race to close out positions may cause heavily shorted stocks to rally further. Meanwhile, a more dovish Fed could cause a general market rally, adding to their losses.

Short sellers should avoid meme stocks like the plague. A heavily shorted stock with a passionate fan base is simply too hot to handle.

What do you think is next for short sellers? Leave a comment at the bottom and let me know!

More on markets:

Citadel’s Illegal Trades — The Tip of the Iceberg?

As Fed Rates Peak, Are Markets Ready to Take Off?

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Citadel’s Illegal Trades — The Tip of the Iceberg?

January 27, 2023 tremendousblog 7 Comments

South Korea has fined Citadel Securities for illegal stock trades made with high frequency algorithms. From a report out last night in Reuters:

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South Korea’s financial regulator has imposed a fine of 11.88 billion won ($9.66 million) on U.S.-based Citadel Securities, saying it disturbed the local stock market with high-frequency algorithm trading.

The Financial Services Commission (FSC) said in a statement released on Thursday the firm had distorted stock prices with artificial factors, such as orders on the condition of “immediate or cancel” and by filling gaps in bid prices.

These illegal trades were no isolated incident. Regulators found improper trades in thousands of stocks over a period of nearly a year:

The firm carried out such trading on an average of 1,422 stocks per day from Oct. 2017 to May 2018, totalling more than 500 billion won worth of trades, according to the statement.

Citadel’s illegal trades stand out as some of the most egregious ever in South Korea:

The Commission said it was the first time it had imposed fines on such high-frequency trading on the South Korean stock market, which has a high proportion of retail investors and little competition among algorithmic traders.

Citadel used strategies such as flash orders to gain an illegal advantage over other traders. This practice involves offering to buy or sell and then retracting the order in a fraction of a second.

Flash orders let you see the prices at which other traders are willing to buy or sell. This gives you an illegal edge over your competition.

In Korea, Citadel used these strategies to take advantage of mom and pop retail traders, which I find particularly heinous.

Citadel’s algos don’t stop in Korea.

The firm was recently fined by the US Financial Industry Regulatory Authority (FINRA) for frontrunning its customers. By placing trades ahead of customers, Citadel made money for its own account.

Breaking the law appears to be quite lucrative for Citadel.

Citadel Securities posted record revenues of $7.5 billion last year. Citadel’s hedge fund made even more, approximately $28 billion.

I think Citadel is using these illegal flash orders all over the world. They may also be using other illicit tactics we don’t know about yet.

After all, if you go to the trouble to create a program that can make you money, why not use it in as many places as possible?

The reality is that these speeding tickets will never stop Citadel. Fines in the millions are a cost of doing business for a multi-billion dollar operation.

Securities regulators worldwide should find out what exactly Citadel is doing in their markets. If they find more wrongdoing, they should simply ban the firm from trading for a period of years.

Nothing but a severe penalty will stop them.

Who says crime doesn’t pay?

What do you think is the future for Citadel? Leave a comment at the bottom and let me know!

More on markets:

Tiger Global Losing $185 Million a Day

As Fed Rates Peak, Are Markets Ready to Take Off?

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As Fed Rates Peak, Are Markets Ready to Take Off?

January 5, 2023 tremendousblog 4 Comments

In 2022, the Fed tightened its vice grip until we squealed. But as interest rates peak this year, markets are in a position for serious growth.

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It stands to reason: if someone is hitting you with a stick, the pain diminishes when they stop hitting you. To confirm this, I looked at four periods of peak interest rates from 1981 to today.

In most cases, markets jumped significantly within a year after the federal funds rate peaked.

Let’s dig into some examples….

Paul Volcker’s Hammer

Federal Reserve Chairman Paul Volcker took interest rates to eyewatering levels in 1981. They peaked at 19% that summer, a far cry from today’s 4.5%.

Markets continued to fall for about a year.

But then, something amazing happened. Volcker crushed inflation and stocks rocketed upward for almost 20 years.

A Stake Through Inflation’s Heart

Like the undead, inflation rose again in 1989. Volcker pushed rates back up to 10% by April, ramming a stake through its cold, black heart.

Markets jumped shortly after, rising about 16% in the next year.

The Go-Go 90’s

After falling to a low of 3% in 1993, the Fed hiked rates to a peak of 6% in the spring of 1995. Chairman Alan Greenspan aimed to cool a red-hot economy and prevent inflation.

Markets ignored him. Stocks went vertical, more than doubling in 4 years.

The Financial Crisis

By the mid-2000’s, the real estate market was out of control. The Federal Reserve took rates from a rock-bottom 1% to 5% by the summer of 2007.

This time, it really was different.

There was no quick rebound even as the Fed took rates to zero. In fact, it took over 5 years for stocks to recover from the financial crisis.

The financial crisis stands out as the worst since the Great Depression. Last year’s S&P 500 return of -18% doesn’t compare to the Great Recession’s -48% bloodbath.

In all, once rates peak, we usually see markets begin to climb in 12 months or less.

As companies look at a future of stable or declining rates, they’re more comfortable borrowing money and making investments. If rates peak mid-year as analysts project, I expect to see markets jump by the end of 2023.

What do you think 2023 holds for markets? Leave a comment at the bottom and let me know!

More on markets:

Tiger Global Losing $185 Million a Day

Is SBF Laundering Money As We Speak?

Why Crypto is Still Massively Overvalued

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New Report: AMC Fails to Deliver Hit 4.3 Million

November 30, 2022 tremendousblog 5 Comments

Fails to deliver in shares of AMC Entertainment Holdings reached extraordinary levels in November. 4.3 million shares have failed to clear by November 14th, the latest data available.

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This new report, out today from the SEC, shows the highest levels of fails to deliver in months. This is particularly striking given the much lower fails to deliver in the largest stocks.

Let’s see how many fails to deliver some of the largest stocks in the market had on November 14th:

Amazon: 253

Apple: 0

Google: 0

Microsoft: 11,553

These companies are hundreds of times larger than AMC. But somehow, a little theater chain dwarfs them all in failed stock trades.

Fails to deliver can happen for benign reasons. But a long and persistent pattern of fails to deliver, as in AMC stock, can point to something more nefarious.

Huge numbers of failed trades can indicate naked short selling. This is the illegal practice of selling short shares you never borrowed.

It’s a potent way to crush a stock’s price. After all, if you don’t have to borrow a stock, you can sell short all you want!

Increasing failed trades may be related to higher borrowing costs for AMC shares. With fees going from 20% to up to 100% a year, borrowing shares is more expensive than ever.

It’s a lot cheaper to naked short sell. Unfortunately, it’s also against the law.

I urge the SEC to investigate the long term pattern of chaos in AMC shares. Only a full investigation can restore confidence in markets.

What do you think of this huge fails to deliver number? Leave a comment at the bottom and let me know!

Today is the blog’s second birthday! Thank you guys for a great two years! 🙏

There’s a lot more to come!

More on markets:

Tiger Global Losing $185 Million a Day

Hedge Funds Lose Billions as FTX Implodes

Is SBF Headed to Prison?

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New Report: Millions of Fails to Deliver in AMC and APE Shares

September 30, 2022 tremendousblog 25 Comments

Fails to deliver in shares of AMC Entertainment Holdings reached the millions in the first half of September. The chaos hit both AMC and AMC Preferred Equity (APE) shares, according to a new report out today from the SEC.

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APE fails to deliver peaked at 2.4 million shares on September 1st. AMC fails to deliver peaked a week later on September 8th, at 2.2 million shares.

AMC shares have had large and persistent fails to deliver for over a year. It’s telling that as soon as APE shares were issued, huge fails to deliver appeared there as well.

Meanwhile, much larger companies continue to have almost no trades failing. Let’s take a look at fails to deliver in a few major stocks on Sept 1st:

Amazon: 0

Apple: 5,679

Microsoft: 0

Tesla: 14,727

APE: 2,366,422

And again a week later:

Amazon: 17,603

Apple: 523,020

Microsoft: 179

Tesla: 10,561

AMC: 2,164,802

Fails to deliver in AMC and APE are dramatically larger than in much bigger companies. Why are these shares in constant chaos while other companies are unaffected?

I suspect it’s because of naked short selling by hedge funds. This illegal practice involves selling short shares you never borrowed.

It’s a powerful weapon to crush a stock. If you never have to find shares to borrow, you can sell short any amount!

This can reach absurd levels. In August, we saw fails to deliver in APE shares exceed the entire daily trading volume.

The SEC must investigate what’s going on in AMC and APE shares. Until they do, it’s hard to believe the prices we see are real.

What do you think of the huge number of failed trades in these shares? Leave a comment at the bottom and let me know!

Have a wonderful weekend everyone! 👋

More on markets:

Over 43 Million APE Shares Fail to Deliver — Market in Chaos

Hedge Fund Manager’s Arrest Shows How Market Manipulation Works

Morgan Stanley Investigation Spreads to Multiple Countries

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Over 43 Million APE Shares Fail to Deliver — Market in Chaos

September 16, 2022 tremendousblog 6 Comments

The market in AMC Entertainment Holdings Preferred Equity (APE) shares is a mess. Fails to deliver (FTDs) peaked at over 43 million shares last month, according to a report just out from the SEC.

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These new shares were issued last month by AMC and began trading on August 22. FTDs peaked at 43,438,257 shares two days later.

This represents over 8% of all shares outstanding. And it all happened in 3 days!

FTDs like this is beyond a mix-up. It’s a total market meltdown.

FTDs remained elevated through the end of the August reporting period. They settled at 5,635,854 on August 31, the last data available.

Let’s compare the FTDs on August 24th in APE shares with those of some of the biggest stocks in the market:

Amazon: 0

Apple: 395,929

Google: 113

Microsoft: 0

Tesla: 530

APE: 43,438,257

APE shares have dramatically more FTD’s than other, much larger stocks.

FTDs can sometimes happen for benign reasons, like clerical errors. But when there’s a sustained pattern of massive trade failures, it often indicates naked short selling.

This generally illegal practice involves selling short shares without borrowing them first. It’s a powerful way to push down a stock’s price.

If you don’t have to find shares to borrow or pay interest, you can sell short as many shares as you like! All that selling makes a stock’s price crater.

If naked short sellers are targeting APE, so far they seem to be winning. The stock is down 43% since its debut.

The NYSE and SEC must look into this market breakdown immediately. One in three trades failing is not a functional market.

What do you think of the huge FTD numbers in APE shares? Leave a comment at the bottom and let me know!

Have a great weekend everyone!

More on markets:

AMC Fails to Deliver Pass 700,000 in New Report

Hedge Fund Manager’s Arrest Shows How Market Manipulation Works

Morgan Stanley Investigation Spreads to Multiple Countries

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