When the markets tumble enough causing fund redemptions and/or rebalancings, the heavily shorted names shoot up as the funds unwind their short positions.
Strange, so you are saying when funds are expecting redemptions, they spend $$ to cover their shorts??? seems like they would short more to raise money $$ to cover redemptions.
If you have $100 allocated+ 130 long- 30 shortand your investor asks for $10 back, you have to unwind $16 worth of securities.So your new position is+ 117 long- 27 shortSo you sell $13 of longs and buy $3 of shorts -- otherwise you might be over-leveraged.There's no strategic thinking involved.
Are you retarded? Why would anyone cover their short positions when the market tumbles? That's the exact time you'd want to stay short.
COVER before you can't afford to shop at LULU ever again.
we Took out last week highs..trend is UP Great brands all moving up. AAPL, DECK, LULU, AMZN... Market in Confirmed Rally (per IDB)
If you need to reduce your portfolio size, you sell all the longs and buy the shorts -- liquidity overrides tactical allocations.