• Subscribe
  • Log In
  • Home
  • Daily Diary
  • Asset Class
    • U.S. Equity
    • Fixed Income
    • Global Equity
    • Commodities
    • Currencies
  • Sector
    • Basic Materials
    • Consumer Discretionary
    • Consumer Staples
    • Energy
    • Financial Services
    • Healthcare
    • Industrials
    • Real Estate
    • Technology
    • Telecom Services
    • Transportation
    • Utilities
  • Latest
    • Articles
    • Video
    • Columnist Conversations
    • Best Ideas
    • Stock of the Day
  • Street Notes
  • Authors
    • Bruce Kamich
    • Doug Kass
    • Jim "Rev Shark" DePorre
    • Helene Meisler
    • Jonathan Heller
    • - See All -
  • Options
  • RMPIA
  • Switch Product
    • Action Alerts PLUS
    • Quant Ratings
    • Real Money
    • Real Money Pro
    • Retirement
    • Stocks Under $10
    • TheStreet
    • Top Stocks
    • Trifecta Stocks
  1. Home
  2. / Jim Cramer

Jim Cramer: Short Sellers Are Coming Up Short

Much of Tuesday's rally is on the backs of hedge funds who -- poorly positioned for the Wuhan coronavirus -- started shorting virus-related stocks right into Friday.
By JIM CRAMER Feb 04, 2020 | 12:16 PM EST
Stocks quotes in this article: NKE, RL, TGT, KSS, M, PVH, FB, SNAP, CLX, TSLA

Is this power of short sellers gone wrong? I think it's important to point out that a lot of Tuesday's rally is taking place on the backs of hedge funds who were poorly positioned for the impact of the Wuhan coronavirus and then went to work shorting "virus" stocks right in the downturn last Friday.

They didn't count on the tens of billions that China put to work propping up all assets. They didn't count on the notion that there were no real sellers to speak of, just sellers of the S&P futures and the selling stopped after a sense that the Chinese have gotten the situation under control and there hasn't been an expected spike in hospitalizations here, while it looks like China will be back to work next week. Most S&P index money is dedicated long money, anyway.

Let me give you some examples of what I am talking about. If you thought that there might be a closure of the Macau casinos, then you are right. If you thought that the stocks would go down on the announcement that they are going to close the casinos for a bit, you would know that would require negative revisions, so you world short them. But when the longs, the current shareholders, saw the news they didn't sell. Maybe a lot of that ownership is index funds, and they never sell. Maybe a lot of those longs now think the worst is over. Whatever, it is extraordinary that there is a shortage of sellers of stocks that represent companies where, normally there would be major sellers, time-size sellers as we called them, on the trading desk.

Or take Nike (NKE) . Here's one that was regarded as a prime stock to be sold short: Many of its shoes are made in China, and China has been a fabulous market for them. So why not short that one, it's got a double-whammy going against it?

Then you come in Monday and you get not one, but two upgrades of the stock. Then you find out that new CEO John Donahue is coming in to speak to large account this week, as well as going on camera to tell the story -- not of China -- but of personalization and Nike's technological edge. A good short spoiled.

Consider the stock of Ralph Lauren (RL) . One of the best shorts in this market has been clothing and apparel. Doesn't everyone know how weak Kohl's (KSS) , Macy's (M) and Target (TGT) were? PVH Corp. (PVH) reported a good quarter, and no one cared. So why not just short Lauren. Nope, Patrice Louvet has reinvented the place with elevated merchandise and selling products via the internet channel especially over Facebook's (FB) Instagram and Snapchat (SNAP) . What was once a drawback, a lack of China business is now a virtue. It's a homerun.

Many analysts have Clorox (CLX) as an underperform. When short sellers sees that designation --figuring that -- they have a loser in their hands. Clorox has been disappointing for some time. But not this time. No sellers develop.

Finally there is Tesla (TSLA) . While it is not in the S&P, it is in wonderland. Ever since the company made money two quarters ago, busting the short thesis, it's be a short-sellers nightmare. Remember shorts must have stock in hand, so they can sell it to those who actually buy it. But there's been a shortage of stock. So when someone like Ron Baron comes on, the hedge fund operator who has championed the stock from the get-go and uses a trillion dollar target, you will get a short squeeze where the brokers have no choice, but to close out your short for you. "Buy ins" are nightmares. But they are happening everyday in this stock and will keep happening until what we call "natural " sellers service.

We have a serious dichotomy in money running these days. Because so much money is indexed or closet indexed -- meaning they overweight or underweight certain groups in the S&P but they look pretty much like the S&P -- institutions like to have hedge funds as a hedge against their long funds. So these have dedicated short money.

That's where the real damage is. That's who is driving this market right now. They are doing a great job of it and it comes at their own expense.

(FB and CLX are holdings in Jim Cramer's Action Alerts PLUS member club. Want to be alerted before Jim Cramer buys or sells them? Learn more now.)
Get an email alert each time I write an article for Real Money. Click the "+Follow" next to my byline to this article.
TAGS: Short-selling | Apparel | Automotive | Healthcare | Pharmaceuticals | Retail | China | Jim Cramer |

More from Jim Cramer

Jim Cramer: I'll Put My Money With 'Boring but Lucrative' Any Day

Jim Cramer
Sep 29, 2021 1:28 PM EDT

Let's look at that recent downgrade of 'dull' Morgan Stanley and see why exciting is best left for the stadiums and amusement parks -- and not stocks.

Jim Cramer: America's Toughest Job? Finding Workers

Jim Cramer
Sep 28, 2021 12:17 PM EDT

It's the question of our time: Where are the people willing to take on these better paying gigs? Let's see what's going on and what we need to happen.

Jim Cramer: Here's How Analysts Can Be Off By a Wide Margin

Jim Cramer
Sep 24, 2021 12:02 PM EDT

Let's look at the reactions to Nike, Costco and Salesforce to see what happens when they're viewed from a real world perspective.

Jim Cramer: It's Pure Insanity That We Don't Make Chips Here in the U.S.

Jim Cramer
Sep 23, 2021 11:05 AM EDT

While the big guns meet at the White House about the global chip shortage, the president and these companies are approaching this all wrong.

Jim Cramer: Go Ahead, Have a Cow, but I Say Powell and Xi Are Bulls

Jim Cramer
Sep 22, 2021 3:51 PM EDT

We rallied, because China's President Xi and Fed Chair Powell made decisions that they knew would lead to rallies.

Real Money's message boards are strictly for the open exchange of investment ideas among registered users. Any discussions or subjects off that topic or that do not promote this goal will be removed at the discretion of the site's moderators. Abusive, insensitive or threatening comments will not be tolerated and will be deleted. Thank you for your cooperation. If you have questions, please contact us here.

Email

CANCEL
SUBMIT

Email sent

Thank you, your email to has been sent successfully.

DONE

Oops!

We're sorry. There was a problem trying to send your email to .
Please contact customer support to let us know.

DONE

Please Join or Log In to Email Our Authors.

Email Real Money's Wall Street Pros for further analysis and insight

Already a Subscriber? Login

Columnist Conversation

  • 03:07 PM EDT PAUL PRICE

    Why is Wal-Mart Down Big Today?

    Besides its poor earnings report Wal-Mart (WMT) wa...
  • 07:14 PM EDT PAUL PRICE

    A New, Very Scary Movie

  • 08:51 AM EDT PAUL PRICE

    Advice From the Future...

  • See More

COLUMNIST TWEETS

  • A Twitter List by realmoney
About Privacy Terms of Use

© 1996-2022 TheStreet, Inc., 225 Liberty Street, 27th Floor, New York, NY 10281

Need Help? Contact Customer Service

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data & Company fundamental data provided by FactSet. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by FactSet Digital Solutions Group.

TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

FactSet calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.

Compare Brokers

Please Join or Log In to manage and receive alerts.

Follow Real Money's Wall Street Pros to receive real-time investing alerts

Already a Subscriber? Login