A global gauge puts hedge fund short leverage in the top 1% of its five-year readings, as October trading has shown an approximately 5-to-1 imbalance between short activity and long purchases.
The 99th-percentile label compares the gauge with its own observations over the previous five years. It does not mean that 99% of hedge funds hold short positions; it describes the level of the measure, not the number of firms taking that stance.
Overall leverage across hedge funds has rebounded. Yet fundamental long-short funds are close to their lowest net leverage reading in about three years. Net leverage compares long exposure with short exposure, so the current low indicates less net-long exposure among those funds.
A catalyst-driven shift in sentiment could lead short sellers to close positions by buying shares. That added buying pressure could intensify a market reversal, creating the conditions for a short squeeze.
