It's no secret that we saw the mother of all short squeezes earlier this year, but JPMorgan analysts say all S&P 500 shorts haven't been covered yet. In fact, they note that the number of shares of companies in the index that are being sold short remains at about the same level it was at in the middle of February when it was very high.

Rally due to more than just covering of S&P 500 shorts

This appears to account for the anomaly we've seen as most analysts have maintained that we saw a massive short squeeze in late February and early March, while others claimed that there was no squeeze but that the S&P 500 was simply due for a rally. Even now, the stock market continues to climb higher as investors continue to cover their S&P 500 shorts, but analyst Nikolaos Panigirtzoglou of JPMorgan sees pockets of the market where there is still significant short interest.

He also said that short covering isn't the only factor in the recent equity rally. According to Panigirtzoglou, CTAs and risk parity funds seem to have driven last month's rally as both are now “significantly overweight” stocks. He noted that both fund types upped their exposure to equities “markedly” in the middle of the month.

Evidence that CTAs and risk parity funds are driving the rally

The analyst states that the CTA return index illustrates how CTAs and risk parity funds have been following the S&P 500 in the second half of last month, while the two indices' movements were negatively correlated in the first half.

He adds that CTAs and risk parity funds saw the largest increases in exposure to stocks in the middle of last month compared to other fund types, with CTAs especially switching from significant exposure to S&P 500 shorts in the first half of the month to significant long exposure in the second half. The JPMorgan analyst also notes that risk parity funds' equity beta more than doubled in the second half of March.