Everyone and their grandma was short the Russell 2000. Are we short squeezing? In other words, do you believe recent moves have triggered large amounts of short covering.
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- Squeezing
- Not Squeezing
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I think it's more likely that the Fed's indication of a rate cut was perceived to benefit small caps a great deal.
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Definitely an important factor
Here is an interesting analysis. The first chart looks at my microcap port vs the R2K on days where the R2K is up 2% or more:
Overall, pretty large skew toward underperformance.
This chart looks at the 100 highest short interest stocks in the R2K vs the R2K on days where the R2K is up 2% or more:
Very much the opposite skew. This tells me that there is a lot of short covering in the R2K historically on large up days.
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Thanks for sharing Charles, the futures data also appears to show Friday saw some covering -at least in the futures. Hard too say if it is the primary driver, but at least the hypothesis seems plausible. I am of the mind multiple things combined though such as the perception of dovishness from the Fed.
I think you have things backwards.
High short-interest stocks are largely high-volatility stocks; stocks that are favored in your microcap system are likely low-volatility stocks (most ranking systems on P123 favor those). One way the Russell 2000 can go up 2% in one day is if high-volatility stocks go up a lot. Low-volatility stocks probably won't move the needle as much.
So think of it this way: when high-volatility stocks go way up and low-volatility stocks don't, then the Russell 2000 is much more likely to rise above 2% in one day.
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