This year’s rally in technology stocks has pushed the Nasdaq 100 Stock Index ($IUXX) (QQQ) up nearly +12% and caused major losses for short sellers. According to data analytics firm S3 Partners, ten of the most-shorted stocks this year delivered almost $17 billion in combined mark-to-market losses through last Thursday. However, recent weakness in the overall market may encourage some bears to hold out on their losing positions.
Tesla (TSLA), which has rallied +69% so far this year, has led to $7.2 billion of losses for short-sellers of that stock and led the tech group for short-seller losses. Nvidia (NVDA) is second with $2.9 billion of losses for short-sellers, followed by a $2.8 billion loss for short-sellers of Apple (AAPL). Short sellers of Meta Platforms (META) have lost $1.4 billion this year, and investors lost $1 billion being short Amazon.com (AMZN).
The recent short-seller losses in technology stocks represent a sharp reversal from last year when combined paper gains for the top ten shorted stocks were $57 billion, according to S3 Partners. High-priced technology stocks plummeted last year as rising interest rates sent those speculative companies with elevated price-earnings ratios tumbling.
But short sellers are being hammered this year as investors’ appetite returned for the growth and technology stocks that slumped in 2022. Crossmark Global Investments said, “if you shorted unprofitable names with high price-earnings ratios last year, you made a lot of money; if you are short right now, you are getting squeezed real hard.”
Some analysts, however, say the current tech stock rally will soon fizzle out, making highly valued stocks attractive short-seller targets once again. According to data compiled by Bloomberg, the Nasdaq 100 trades at 23 times forward earnings, up from about 19 times four months ago. AdvisorShares Ranger Equity Bear ETF said the market’s valuation is full, and growth drivers at big technology companies have been slowing, making their stocks “extremely expensive as the risk-reward is very poor in the market, which makes hedging or short selling attractive.”
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On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
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