The Hedge Funds Are Betting Heavily Against These Stocks, and It's Working

Amidst the ongoing equity rally, certain hedge funds are taking bearish positions against a selection of companies, spanning the electric vehicle (EV) market to a manufacturer of robots. Interestingly, many of these targeted companies are facing poor performance in the early months of this year.

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Despite lingering doubts about the future trajectory of interest rate cuts, strong investor sentiment continues to drive the current market rally. Stocks notably surged on Tuesday following the release of February U.S. inflation data that closely aligned with expectations. The S&P 500, which recently entered another bull market, has risen by 0.9% this week. The Dow Jones Industrial Average has gained 1.1% week-to-date, while the tech-heavy Nasdaq Composite has added only 0.6%, indicating a potential slowdown in the artificial intelligence-inspired rally.

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While the broader market continues to trend positively, stocks with significant short interest, typically poised to surge during strong market rallies, are experiencing declines. Recent short interest data highlights several stocks that have witnessed negative trends both month-to-date and since the beginning of the year.

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Trade Algo analyzed FactSet data for stocks listed on the New York Stock Exchange and Nasdaq Exchange with the highest short interest as of February 29. Each of these stocks has a market capitalization of at least $100 million, with short interest representing a minimum of 25% of their float – the number of outstanding shares available for trading.

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1. EV-related Stocks:
   • Lucid Group (EV Player): Short interest stands at 29.5% of the stock's float. Lucid's shares have declined over 30% this year after reporting a fourth-quarter revenue miss and widening losses on February 21.
   • ChargePoint Holdings (EV Charging Stations Operator): Short interest increased just over 1% to approximately 25% of its total float. ChargePoint's stock has fallen roughly 21.5% year-to-date and over 11% this month, following a significant quarterly revenue loss on March 5.
2. Other Stocks with Notable Short Interest:
   • Luminar Technologies (Technology for Self-driving Cars): Approximately 33% short interest. Luminar's stock has plummeted 41%.
   • Carvana (Used Car Retailer): Also facing around 33% short interest. Despite short interest, Carvana's stock has gained 47% this year.
   • iRobot (Consumer Robots Maker), Beyond Meat (Plant-based Meat Producer), Sunnova Energy (Residential Solar Company), Recursion Pharmaceuticals (Health Care): Each of these stocks has experienced significant losses so far this year.
3. Outliers:
   • Intuitive Machines (Space Exploration Company): Despite heavy short interest, the stock has significantly outperformed this month, soaring 116% year-to-date after the successful completion of its first lunar mission.

These trends reflect the complex dynamics within the market, where certain sectors, especially in the EV and technology spaces, are facing headwinds despite the overall positive market sentiment. Investors are closely monitoring short interest and company performance to navigate potential opportunities and risks in this dynamic landscape.

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