Nvidia and Apple shorts are a trick bull and bear trade – Jim Cramer

CNBC’s Mad Money host Jim Cramer has warned traders that short positions in tech giants Nvidia and Apple may be a bull-bear trap for the market. Hedge funds are still grappling with a sudden market upturn from last Wednesday, where several short traders were liquidated when US President Trump paused tariffs on several nations for 90 days.

“Nvidia and Apple are so heavily shorted that I don’t think the shorts are going to play their hands first,” Cramer posted on X Monday. 

“They are going to let them rally and hit them again. That’s the only way they can get out of this mess because they can cover after they drive them down a bit.”

Short squeeze sees the market going into chaos

According to Goldman Sachs’ prime brokerage data, hedge funds had amassed a record number of short bets on US equities before last Wednesday’s trading session. 

Many traders believed there could be a massive economic fallout from Trump’s tariffs. But stocks rocketed higher as the administration unexpectedly walked back some of its threats.

Hedge funds were forced to cover en masse, which sent the S&P 500 soaring 9.5% in a single day, its third-largest gain since World War II. Per Goldman, the most-shorted stocks surged by an even more staggering 12.5% when traders rushed to unwind bearish positions in a classic short squeeze.

“You can’t catch a move. When you see someone short covering, the exit doors become so small because of these crowded trades,” said Jeff Kilburg, CEO and CIO at KKM Financial.

Looking at Monday’s pre-market open session, both Nvidia and Apple equities have not moved below their 5-day lows. According to Google Finance data, the former has seen an uptick of about 26% since April 8, while the latter has gone up by 12.3% simultaneously. 

Cramer says the stocks will go low again to incentivize short sellers to try their luck again.

Oppenheimer’s trading desk called the whipsaw in tech stocks “extreme,” saying that the rise wasn’t just driven by short covering and “real buyers adding on to higher quality semis.”

Wednesday’s rally was also fueled by unusually thin market liquidity. Goldman Sachs reported that the depth of E-Mini S&P 500 futures, a gauge of market liquidity, hit an all-time low of $2 million on Monday.

Long-only institutional funds also bought heavily into tech stocks during the final three hours of Wednesday’s session, per the Bank of America.

Still, many traders credit the scale of the rally to the mass unwinding of short positions. 

“The pain on the short side is palpable,” one trader noted. “This was more than just technical, it was panic buying.”

Markets did pull back the next day when traders sobered up to the ongoing economic threat of high tariffs and trade uncertainty. Yet, like the Mad Money host, analysts say the short squeeze may not be over.

“Short covering is far from over,” Bank of America’s trading desk wrote. “There’s no shot the market de-risked in under three hours after seven weeks of leverage reduction and 20%+ downside in the SPX Index.”

March short interest clocked multi-year highs

Supporting Cramer’s thesis, Nasdaq data shows that at the March 31, 2025 settlement date, short interest across 4,765 Nasdaq-listed securities totaled 15.75 billion shares, up from 15.66 billion two weeks earlier. The number represents 2.14 days of average daily volume, up from 1.88 days in mid-March.

The Nasdaq Global Market saw 13.07 billion shares shorted across 3,140 securities, with average daily volume rising to 2.64 days. The Nasdaq Capital Market logged 2.68 billion shares shorted in 1,625 issues, a noticeable uptick.

Even with recent rallies, bearish bets are still substantial, and traders will be counting on the tug-of-war between the US and China trade policy to continue with more market volatility.

Goldman Sachs says that nine out of 11 S&P 500 sectors were net sold last week, with financials, technology, and consumer discretionary seeing the heaviest outflows. Selling in financials was the fastest since January 2021 and the second-highest ever recorded.

“Lower prices drew out huge selling from many corners of our franchise,” Pasquariello noted. “People are just getting into self-protection mode.”

Meanwhile, the S&P 500 climbed to 5,419.04 on Monday, a 1.81% gain or 95.31 points from the previous trading session. Over the past four weeks, the index has advanced 4.51%, while its year-over-year performance reflects a 7.06% increase.

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