Hedge Funds Open Massive Bet Against S&P500

Aug 25 2011 | 12:53am ET

Hedge funds are more bearish now than they have been since the collapse of Lehman Brothers Holdings almost three years ago.

As of Aug. 16, hedge funds held a net short position of 71,980 on the Standard & Poor's 500 Index, according to Société Générale. That's their largest net short position on the benchmark since December of 2008.

"Active market participants have switched to a massive net short," Alain Bokobza, one of the authors of the SocGen report, told Financial News. "They have reacted very strongly to the recent economic and political newsflow."

"It indicates just how pessimistic hedge funds are," he said.

But, Bokobza added, hedge funds' piling into shorts are in part to blame for the massive decline suffered by the S&P500 this month. And the level may actually be good news for the markets.

"At some point, they will have to take profits and cover their shorts," he said. "Technically, this will be a bullish indication for equities."

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