Warren Buffet's deal to invest $5 billion in Bank of America preferred shares led to a strong rally in the ailing stock, and in so doing, gave a lot of ailing hedge fund managers a boost. Many had been riding the stock south, watching it sink under the weight of fear, rumors and heavy short interest.

For the moment, the bears are back on top. After Buffet's deal was announced, the shorts had little choice but to cover some of their positions. It's unclear if the Buffett deal marks a low for the stock, but the likes of John Paulson are likely breathing easier. Paulson had loaded up on Bank of America shares only to watch them tank this year, helping send his flagship Advantage funds sharply downward.

Reuters reports the leveraged Advantage Plus fund is down nearly 40 percent this year after a tough August. The article notes that while Paulson sold of a lot of his Bank of America shares, he remains a top 20 shareholder. A lot of other hedge fund managers owe Buffett their gratitude. These funds face a huge question now: Is the Buffett rally an opportunity to cut their losses? Or is this turning point that points to a higher price down the road?

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