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Credit Suisse is warning on crowded shorts and longs entering profit season:
“We generally found there is alpha to be had by joining crowded short trading, but that the associated stocks are most prone to reversal risks in the lead up to and during reporting periods…We believe this is due to news arrival during these periods, which is not as bad as expectations built into the price.”
…“Relative to crowded short trading, this makes some sense because investors are more able to implement their positive ideas by being long stocks than their negative ideas by being short stocks; therefore, the crowded long trading stocks are potentially more at risk of being overvalued relatively than the crowded short trading stocks in the short term.”
About the author
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific's leading geo-politics and economics portal.
He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.
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