• Badge

    A Decade of Revolution Declare Your Research Independence

Ouchy!! Wall Street Consensus Hit By Epic Short Squeeze - squeeze image

Source: Mick Stephenson

In the latest example of what not to do with your portfolio, we have Wall Street consensus positioning...

  • Last week, Wall Street built the largest short position in the Russell 2000 in almost 30 months...
  • The Russell 2000 goes up +3.9% in the last five days of trading as...
  • Shorts got squeezed, stock market bears capitulate...

Look no further than stock market volatility to understand just how painful the capitulation was for U.S. equity bears. The VIX crashed, dropping -32% over the past five days of trading (see Chart of the Day below). 

Ouchy!! Wall Street Consensus Hit By Epic Short Squeeze - 4.25.17 EL Chart

EPIC? Yes, Epic Short Squeeze

What an epic short squeeze it was. The chart below shows Wall Street consensus positioning across a variety of asset classes last week. The key callout is the Russell 2000 which, at -70,662 net contracts, consensus was as short as they've been in two and a half years, writes Hedgeye CEO Keith McCullough in today's Early Look.

With France's election day uncertainty lifted over the weekend, reality set in. And investor's shifted their focus to the U.S.'s unequivocally bullish data, namely U.S earnings season.

So far, 107 of 497 companies in the S&P 500 have reported financial results for the first quarter of 2017. Aggregate S&P 500 sales and earnings growth were are up +4.4% and 13.2% respectively year-over-year.

Key callout: Financials sector (XLF) earnings growth with in the S&P 500 is up +20.7% so far, ranking third among the eleven S&P 500 sectors in terms of earnings growth. No surprise Financials lead the leaders in performance yesterday, up +2.25%, taking its six-month performance up +21%. 

Ouchy!! Wall Street Consensus Hit By Epic Short Squeeze - cftc net 4 25 17

U.S. #GrowthAccelerating

Despite Wall Street's disbelief that the stock market heads higher, we continue to argue that actual economic data (like U.S. company earnings growth) supports the rally.