Short Sellers Are Ramping Up Their Bets Against Tech Stocks: Analyst Says This May Be A 'Bear Rally'

Zinger Key Points
  • Technology sector short interest has increased by $30.9 billion since mid-June.
  • Traders may be shorting the tech sector as a hedge against another market downturn.
Short Sellers Are Ramping Up Their Bets Against Tech Stocks: Analyst Says This May Be A 'Bear Rally'

The technology sector has taken quite a hit so far in 2022 as investors bet that rising interest rates could weigh on tech stock growth rates. Tech short sellers have done fairly well so far this year, but a new report by S3 Partners analyst Ihor Dusaniwsky suggests short sellers expect more weakness ahead for tech stocks.

The Numbers: Dusaniwsky said Tuesday that short interest in the technology sector has increased by $30.9 billion since June 16, a larger dollar increase than in any other market sector. That new short selling represents a 17.4% increase and brings the tech sector's total short interest up to $208.4 billion, also more than any other sector. The Consumer discretionary sector is a distant second, with $167.8 billion in short interest.

Related Link: Coinbase Short Sellers Take $363M Hit, Making It A 'Certain Squeeze Stock'

"While there has been short covering in the U.S. market, the short-side has not been reducing their overall short-side exposure to the market. This may indicate that institutions are looking at the recent upward market movements as a 'bear rally' and are expecting a pullback in share prices across the broad market if the recession continues or worsens and the Fed is forced to raise rates higher or quicker than expected," Dusaniwsky said.

Tech Sector Performance: Technology Select Sector SPDR Fund XLK is now down 14.6% year-to-date in 2022. Some of the worst-performing S&P 500 tech sector stocks of the year include Zebra Technologies Corp. ZBRA (down 42%), Teradyne, Inc. TER (down 37.8%) and NVIDIA Corporation NVDA (down 35.8%).

Related Link: 5 Short Squeeze Stocks To Watch: Analyst Names Etsy, LGI Homes And Other Consumer Discretionary Plays

Benzinga's Take: Many traders may be betting on a broad market rebound and shorting the tech sector as a hedge. If the economy worsens or the Fed is forced to raise rates higher than anticipated to combat inflation, growth stocks and tech stocks will likely get hit harder than the overall S&P 500.

Posted In: Ihor DusaniwskyS3 PartnersAnalyst ColorSector ETFsAnalyst RatingsTrading IdeasETFs