Hedge Funds and short selling.
I understand that Hedge Funds involves large pools of money that are injected into the markets for investment purposes. And, that most likely, Hedge Funds' managers use short selling.
Correct me if i'm wrong??
My query is in relation to Hedge Funds and their influence on the market.
For eg., the latest MQG sell off:
It was obvious early last week that MQG shares were being sold off at an alarming rate. Many of the sell orders were quite large, and constant, which makes me think lots of short selling was taking place.
I wonder what will happen when the short sellers close their positions?
I wonder what happens to any stock that is targetted by short sellers, when the shorts close their positions?
I would assume that once the short sellers close their positions, the stock is left with a deficit of 'long' holders, as the borrowed stock is then returned to the broker?
For example, if a stock is sold down at $46.00 and reaches a low of $40.00, before bouncing back, one would assume that the short sellers will close their positions before the price reaches $46.00 again. This makes me think that the stock may reach up to $46.00, but with poor support (lack of long holders). What this equates to is a weak 'bounce' price, due to the lack of long holders.
I surmise that in order for a stock to stay at, or rally above, it's bounce 'recovery' price (in the eg. above, this would be $46.00), a whole lot of new confidence and interest from buyers (people wanting to go long) would need to occur.
I guess what i'm trying to say, in sum, is that once a stock has been attacked by short sellers and they close out their positions, the new price may be on shaky ground due to a lack of long holders.
Am i thinking along the right lines?
Disclaimer: i am only using MQG as an example to illustrate a point.