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Short-Covering Rally in Stock Market’s Toxic Waste Abruptly Ends

  • The end of last week’s massive rally bodes poorly, UBS says
  • Nomura: stocks tend to fall 3 months after momentum reversal
A pedestrian walks past the New York Stock Exchange on a nearly empty Wall Street in New York on March 30. 

A pedestrian walks past the New York Stock Exchange on a nearly empty Wall Street in New York on March 30. 

Photographer: Gabby Jones/Bloomberg

Last week’s rally in the S&P 500 was big, eclipsing any in four decades. But for really breathtaking gains, nothing came close to those in the market’s most beaten-up corners. Stocks that distinguished themselves by how hard they fell during March’s rout roared back almost 25%.

There were signs Monday that the trade -- a short squeeze in negative momentum, to use its quantitative definition -- had run its course, and with it, perhaps, the market’s newfound buoyancy. Stocks in the group fell 2.9% today, trailing their counterparts on the long side of the momentum factor by the most in a month.