The Goldman Fade Among Most Shorted Names

I can't recall how many times we have seen it now and consecutively, 10, 11, 12? Goldman comes out with a "FREE" trading rec'd for the public (because we all know these companies love to spend millions of dollars in research so we can all just happily profit together ...SARC.) and then the rec'd trade is shortly stopped out. This has been such a consistent phenomena that I highlight every GS call I hear about.

Goldman is called some pretty interesting, derogatory things (nicknames) such as "The Vampire Squid" as they have been roundly accused of trading against their own clients (give their clients a trade while Goldman's prop desk fades that trade). These firms go to great lengths to hide what they are doing and for good reason, take predatory HFTs for one that "Ping for Icebergs" which are the signs of a large institutional order being filled, then the faster HFTs front run the order and make the institution pay up for the order while the HFTs make money on the transaction as soon as they can locate that iceberg (as you know only a small portion of an iceberg is visible above the waterline, the bulk is below and hidden, thus they call these orders they are looking for, "Icebergs".

Just like playing poker, you'd never show your hand to someone you are playing against, although you may try to create an fiction to create a new reality as Cramer so eloquently put it in one of his best (and only interviews) I have seen. In any case, it's not that Goldman is ignorant or wrong about these trades that are stopped out one after another, it's that they are taking the other side of them, the entire "Head Fake Concept" that we use is based on the very same misdirection in order to create demand or supply which is essential when trading in the size they do as well as favorable prices.

Goldman's latest as of last week was to join the "Most Shorted" names as they'll outperform on a series of short squeezes and this appears to be an overcrowded trade. I have updated my layout's Russell 3000 Most Shorted names which I then used to create an Index, my "MSI or Most Shorted Index" which played a role last Friday and Thursday as well.

Here's what the MSI vs the Russell 3k looks like (it was also in last night's update).

 This is a view of the MSI (red) vs the Russell 3000 (green) over the last two weeks or so, you can see the macro trend recently, it was not this way a few weeks earlier.


 As for last week, the MSI were being hit harder on the downside going in to Thursday's volatile, big day down as you can see, but on Thursday they were moving toward reversion to the mean (yellow) and reversed Friday as they saw a short squeeze helping to lead the market higher. This morning there's some interesting action as they showed some softening late Friday.

This is the MSI late Friday not able to make a higher high with the R3K, which fits with the leading indicators and other signals from Friday I posted last night.

So far this morning, the Most Shorted Index is underperforming the R3K on a relative basis, in fact since I first captured this chart above just a few minutes ago, it looks worse, now...

The R3K overall is suffering a bit as the MSI is not giving it the boost it did Friday, however it is very early and you know and I know that early data is often deceptive, but this isn't a surprising chart given the leading indicators and other signals that deteriorated Friday in to higher prices which had previously seen strength in the same indications Thursday warning us of a move higher Friday so we'll keep an eye on all of this.

However, what may turn out to be the most interesting part of all of the above is the fact that Goldman has now thrown their stamp of approval in playing the most shorted stocks for squeezes.

I personally have been watching the Transports recently and will continue to update them, lots of high beta names there.