Goldman Sachs Warns Hedge Funds Face Short Squeeze Storm as Short Bets Approach Five-Year Highs

Since October, global hedge funds have accelerated the establishment of short positions, with bearish bets nearing a historical peak not seen in five years. Data from Goldman Sachs' prime brokerage business shows that the ratio of short trades to long buys has reached approximately 5 to 1. If market sentiment experiences a rebound catalyst, the highly crowded short positions could trigger a severe short squeeze. Goldman Sachs' prime brokerage accounts indicate that the global stock short leverage ratio has now risen to the 99th percentile of the past five years. Although the overall leverage ratio has rebounded, the fundamental net leverage ratio, which measures the extent to which longs exceed shorts, has fallen to a near three-year low.

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