The Short Report

This story features MYER HOLDINGS LIMITED, and other companies. For more info SHARE ANALYSIS: MYR

Guide:

The Short Report draws upon data provided by the Australian Securities & Investment Commission (ASIC) to highlight significant weekly moves in short positions registered on stocks listed on the Australian Securities Exchange (ASX). Short positions in exchange-traded funds (ETF) and non-ordinary shares are not included. Short positions below 5% are not included in the table below but may be noted in the accompanying text if deemed significant.

Please take note of the Important Information provided at the end of this report. Percentage amounts in this report refer to percentage of ordinary shares on issue.

Stock codes highlighted in green have seen their short positions reduce in the week by an amount sufficient to move them into a lower percentage bracket. Stocks highlighted in red have seen their short positions increase in the week by an amount sufficient to move them into a higher percentage bracket. Moves in excess of one percentage point or more are discussed in the Movers & Shakers report below.

Summary:

Week ending October 16, 2014.

Last week saw the ASX200 plummet towards its ultimate nadir of the correction since September before V-bouncing near the end of the week to kick off the sharp recovery rally experienced this week. Looking at our short position movement table below, we see a lot of red. This implies the shorters were spending more time building positions on the way down rather than taking profits on existing shorts, and we may deduce that this reflected an expectation of lower index levels yet to be seen. The fact we bounced hard suggests we have seen some quick short-covering this week, although we'll have to weight for next week's ASIC data to confirm.

Mining and mining services stocks dominated the larger short movements last week, and indeed there was not one short reduction recorded  in excess of one percentage point among the 5% plus shorted stocks. Atlas Iron, Beadell Resources, Kingsgate Consolidated, Silver Lake Resources, Monadelphous, UGL and Ausdrill were all among the short increases of one percentage point or more. Meanwhile Myer shorts increased again, ensuring the department store's entrenchment as the most shorted stock in the market at present.

Weekly short positions as a percentage of market cap:

10%+

MYR   17.5
ACR    14.8
MTS    13.0
AGO   12.6
JBH     12.0
COH   11.7
PDN    11.1
NWS   10.3
UGL    10.3
NXT    10.1

In: NWS, UGL          

9.00-9.99%

RRL, MIN, FMG, ILU, KCN, MND

In: MIN, ILU, KCN, MND   Out: NWS, UGL

8.00-8.99%

KAR, WHC

Out: MIN, ILU, CAB, TRS

7.00-7.99%

TRS, DSH, CAB, ASL

In: TRS, CAB, ASL               Out: MND, KCN, SGM, RFG

6.00-6.99%

MSB, SGM, PBG, WSA, RFG, ALQ, VET, CRZ, BDR, FLT, EVN, MML

In: SGM, RFG, BDR, FLT, EVN, MML                  Out: ASL

5.00-5.99%

BRU, BCI, LYC, NUF, TEN, DOW, BLY, SLR, OZL, SXL

In: SLR           Out: BDR, FLT, EVN, MML, BKN
 

Movers and Shakers

Having seen shorts reduce by 1.5ppt the week before, Myer ((MYR)) shorts rebounded by 1.0ppt last week to 17.5% from 16.5% even as the index continued to fall before bouncing late in the week. Myer retains its number one shorted position.

Atlas Iron ((AGO)) found support last week on a slight bounce in iron ore prices, but the shorters pounced and increased AGO positions by 1.9ppt to 12.6% from 10.7%, jumping the stock to fourth from sixth most shorted.

Shorting action in Australia’s beaten down mining services/engineering sector is now so frequent to become tedious, although we usually see pairs action implied by a lot of to-ing and fro-ing. However while last week did see Bradken ((BKN)) drop out of our 5% table with a less than 1ppt fall, all of UGL ((UGL)), Monadelphous ((MND)) and Ausdrill ((ASL)) suffered sizeable short increases last week.

A 1.2ppt increase to 10.3% from 9.1% shot UGL into the elite 10% plus club, while relentless short yo-yo MND copped a 1.1ppt rise to 9.0% from 7.9% and ASL a 1.0ppt increase to 7.0% from 6.0%.

It was not just the services companies but the miners themselves drawing fire last week, aside from Atlas, with Kingsgate Consolidated ((KCN)) shorts rising 1.2ppt to 9.0% from 7.8%, Beadell Resources ((BDR)) rising 1.0ppt to 6.4% from 5.4%, and Silver Lake Resources ((SLR)) sneaking into the bottom of the table with a 1.3ppt rise to 5.3% from 3.9%.

To see the full Short Report, please go to this link.
 

IMPORTANT INFORMATION ABOUT THIS REPORT

The above information is sourced from daily reports published by the Australian Investment & Securities Commission (ASIC) and is provided by FNArena unqualified as a service to subscribers. FNArena would like to make it very clear that immediate assumptions cannot be drawn from the numbers alone.

It is wrong to assume that short percentages published by ASIC simply imply negative market positions held by fund managers or others looking to profit from a fall in respective share prices. While all or part of certain short percentages may indeed imply such, there are also a myriad of other reasons why a short position might be held which does not render that position "naked" given offsetting positions held elsewhere. Whatever balance of percentages truly is a "short" position would suggest there are negative views on a stock held by some in the market and also would suggest that were the news flow on that stock to turn suddenly positive, "short covering" may spark a short, sharp rally in that share price. However short positions held as an offset against another position may prove merely benign.

Often large short positions can be attributable to a listed hybrid security on the same stock where traders look to "strip out" the option value of the hybrid with offsetting listed option and stock positions. Short positions may form part of a short stock portfolio offsetting a long share price index (SPI) futures portfolio – a popular trade which seeks to exploit windows of opportunity when the SPI price trades at an overextended discount to fair value. Short positions may be held as a hedge by a broking house providing dividend reinvestment plan (DRP) underwriting services or other similar services. Short positions will occasionally need to be adopted by market makers in listed equity exchange traded fund products (EFT). All of the above are just some of the reasons why a short position may be held in a stock but can be considered benign in share price direction terms due to offsets.

Market makers in stock and stock index options will also hedge their portfolios using short positions where necessary. These delta hedges often form the other side of a client's long stock-long put option protection trade, or perhaps long stock-short call option ("buy-write") position. In a clear example of how published short percentages can be misleading, an options market maker may hold a short position below the implied delta hedge level and that actually implies a "long" position in that stock.

Another popular trading strategy is that of "pairs trading" in which one stock is held short against a long position in another stock. Such positions look to exploit perceived imbalances in the valuations of two stocks and imply a "net neutral" market position.

Aside from all the above reasons as to why it would be a potential misconception to draw simply conclusions on short percentages, there are even wider issues to consider. ASIC itself will admit that short position data is not an exact science given the onus on market participants to declare to their broker when positions truly are "short". Without any suggestion of deceit, there are always participants who are ignorant of the regulations. Discrepancies can also arise when short positions are held by a large investment banking operation offering multiple stock market services as well as proprietary trading activities. Such activity can introduce the possibility of either non-counting or double-counting when custodians are involved and beneficial ownership issues become unclear.

Finally, a simple fact is that the Australian Securities Exchange also keeps its own register of short positions. The figures provided by ASIC and by the ASX at any point do not necessarily correlate.

FNArena has offered this qualified explanation of the vagaries of short stock positions as a warning to subscribers not to jump to any conclusions or to make investment decisions based solely on these unqualified numbers. FNArena strongly suggests investors seek advice from their stock broker or financial adviser before acting upon any of the information provided herein.

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