The sudden rebound in equities and bullish sentiment helped pull Japanese markets out of a bear market, with bearish traders experiencing a short squeeze that helped bolster returns Friday.
“We’re seeing short squeeze galore,” Mikey Hsia, a trader at Sunrise Brokers LLP, told Bloomberg. “Much of this is technical. Japan has had big moves for three days in a row now – it’s becoming common.”
On Wednesday, the Topix index fell 3.7% to 1,338.97 at the close, trading at a 21% loss since a high on August 10, while the Nikkei 225 Stock Average also sank 3.7% to 16,416.19 and slid 21% off its June 24 peak. Bearish bets on Tokyo’s stock exchange accounted for over 40% of total trading value on Thursday. [Major Market ETFs in Bear Territory]
A short squeeze occurs when investors with heavy short positions are forced to cover, or buy back, their shorts in the event of positive reports that result in a share appreciation. Consequently, the additional buying momentum from short sellers covering their options contracts helped bolster prices even further.
WisdomTree Japan Hedged Equity Fund
Max Chen contributed to this article.