The overall returns on the investable hedge fund composite index were down 0.61 percent on Nov 21, whereas the S&P 500 (INDEXSP:.INX) was down by 1.5 percent over the same period. However, what is standing out in the hedging business is a net short exposure in the NASDAQ 100, hedge funds sold NASDAQ-100 (INDEX:NDX)  to $0.5 billion net short from $0.9 billion net long in last week. According to BAML’s hedge fund monitor, readings this low have not been observed since August of 2011.

Hedge Funds reading lowest in NASDAQ 100

BAML thinks that the low readings are a contrarian bullish take on the index. Among the NASDAQ-100 (INDEX:NDX) companies, technology stocks have been the most actively sold and shorted sector. Any recovery in the tech sector is going to serve as a tailwind for the index. In the other indexes, aggressive selling continues in S&P 500 (S&P Indices:.INX), while shorts in Russell 2000 were added to.

In the previous reports of BAML from last couple of months, Long/Short equity hedge funds have maintained market exposure in the range of 20-24 percent. L/S hedge funds raised exposure from 24 percent to 29 percent in the week ending on Nov 21. Although 29 percent is still below the historical average values, it is certainly an improvement, something that was not expected in a previous analysis of BAML’s hedge fund monitor. BAML’s analysts were of the opinion that it was unlikely that L/S equity funds will buy more exposure, as the corresponding assets under management are not rising.

Long Short equity Hedge Funds market exposure

The Euro is staying in the crowded short zone, a trend that has been consistent for quite a while now. Large spec hedge funds have aggressively bought the 30 yr treasury notes in the last week and are moving up in the crowded long zone, 2 yr treasuries were also bought actively, however the readings are neutral for that one. Readings for 10 yr notes are also in the crowded long region.

Hedge Funds short Euro Long Treasuries