The higher the rise in US stocks, the more people want to go short.

Expectations of the Fed's interest rate cut have come to an end again this week. Given the strong US manufacturing data for May and the decline in the number of first-time jobless claims, Goldman Sachs expects the Fed's first rate cut to be postponed from July to September.

“Overvalued” US stocks continued to rise, and US stock players continued to play and dance.

However, those who shorted US stocks lost a lot.

An ETF that is bearish on the NASDAQ index,$ProShares UltraPro Short QQQ ETF (SQQQ.US)$In May alone, the loss was close to 20%, and the cumulative annual loss was over 27%.

SQQQ, an ETF with triple leverage betting on the fall of the Nasdaq 100 Index, attracted $500 million in capital purchases at the beginning of this month. As long as the NASDAQ falls, investors will profit; vice versa, they will lose.

There is another wave of people who gamble that the volatility of US stocks will rise, and they are also losing money.

It's like$2x Long VIX Futures ETF (UVIX.US)$This ETF, which is double leveraged to prolong VIX futures, lost 33% in May alone, with a cumulative loss of 55% this year.

Because recent bond volatility has remained at its lowest level in two years,$CBOE Volatility S&P 500 Index (.VIX.US)$It fell below 12 points this week, and market volatility is even close to the low level of 2019.

Investors who bought SQQQ and UVIX essentially gambled against the one-sided rise in US stocks and adopted defensive hedging strategies, but they never expected that Nvidia's bursting new earnings report would help the NASDAQ rise for the fifth week in a row. The fanaticism of US stock shareholders taught them a good lesson.

Pain, what a painful perception.

This story tells you that in the world of investing, don't bet on winners who are on the side of the trend.

Alex Saunders, head of Citigroup Research's quantitative macro team, said, “Despite some weak economic data, it is still too early to consider defensive trading strategies. The Fed's interest rate cut expectations this year are still working, which can reduce the risk of a pullback in US stocks. It makes sense for the market to prefer technology stocks and sectors.”

Actually, there is no big problem with this group of investors who adopt defensive strategies. They are trying their best to hedge against the downturn in the economy, but the current situation is better than others, and many investors who adopt put options and high volatility strategies have to start thinking about other methods.

For example, since last year, some investors have targeted US regional bank stocks, small-cap stocks, and retail stocks, as economic cooling will hit these sectors first.

This strategy was quite effective in the US stock market pullback last summer, but it didn't work this year. I didn't expect these economically sensitive industry sectors to rise well this year. There is also the meme stock market that began shorting in May, and even the bears that shorted small-cap stocks lost a lot.

Charlie McEligott, a derivatives strategist at Nomura Securities, pointed out that buying put options is now a very frustrating thing, which forces some investors to use simpler hedging tools such as stock index futures and ETFs. Although futures and ETFs offer less leverage and opportunities to fine-tune positions compared to options, at least their value doesn't slowly decrease every month.

Although most futures positions are “extremely short”, futures are now also the hedging tool of choice for hedge funds because options are “dead””.

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