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The Short Report

Australia | Jul 24 2014

This story features LYNAS RARE EARTHS LIMITED, and other companies. For more info SHARE ANALYSIS: LYC

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 July 17, 2014

The ASX200 crept hesitantly higher last week but as the earnings season edges ever closer, short interest has now started to warm up. Many of the most popular shorters' stocks saw increased positions last week, with Acrux and Atlas Iron the notable movers at the top of the table. Bracket creep at the lower levels was very much weighted to increased short positions, with only a couple of stocks enjoying reductions.

Lynas Corp ((LYC)) has gone for a run and caught out the shorts, so the stock has dropped off the bottom of our 5% plus table, along with takeover target Wotif ((WTF)). In their place we welcome Virtus Health, which has been losing its initial gloss, along with popular defensive Invocare ((IVC)) on bracket creep.
 

Weekly short positions as a percentage of market cap:

10%+

COH   18.1
ACR    15.4
MND   13.4
AGO   13.4
JBH     13.1
MYR   12.4
NWS   12.4
PDN    12.2
TRS     11.5
MTS    11.4
UGL    11.0

Out: ALQ

9.00-9.99%

ALQ, ILU, BKN

In: ALQ

8.00-8.99%

MIN, NXT, SGT, CAB, BLY

In: MIN, SGT

7.00-7.99%

MTU, WHC, RRL, DSH, ASL, FMG, MSB

In: MSB, FMG           Out: MIN, SGT, WSA

6.00-6.99%

WSA, NUF, TEN, KAR, MSB, BRU, VET

In: WSA, NUF, KAR, VET               Out:  MSB, FMG

5.00-5.99%

FLT, SGM, GWA, TSE, VRT, IVC, HVN, SCP

In: VRT, IVC             Out: NUF, KAR, VET, LYC, GNC, OZL, WTF

Movers and Shakers

Acrux ((ACR)) has established a position as the second most shorted stock on the ASX and last week short positions increased further, by 1.3ppt to 15.4% from 14.1%. Not only is ACR’s key testosterone drug still being reviewed by the US FDA, a general nervousness around US biotech valuations has crept downunder.

Still in the health sector, Virtus Health ((VRT)) has popped up in our 5% plus table with a 1.0ppt short increase to 5.2% from 4.2%. VRT shares have drifted lower all month, and news of Primary Healthcare’s planned entry into the IVF market hasn’t helped.

Atlas Iron ((AGO)) continued to draw short interest last week ahead of today’s production report and next month’s profit result as the iron ore price weakened once more and AGO shares continued to drift lower. With another 1.4ppt increase to 13.4% from 12.0%, AGO is now the fourth most heavily shorted stock in the market. Fortescue Metals ((FMG)) has also bracket-crept higher, into the 7% short band from the 6% short band.

Mining contractor Mineral Resources ((MIN)) is another stock popular with the shorters. Last week MIN shorts rose 1.8ppt to 8.8% from 7.0% as the stock price improved.

Nufarm ((NUF)) shares drifted a little higher last week as talk of a bumper US grain season stirred interest, but it may be the vagaries of wether which make NUF popular with the shorters. NUF shorts rose 1.2ppt to 6.6% from 5.4%.

Telco shenanigans continued last week with pairs trading within the sector apparently popular. We find, nevertheless, that iiNet (IIN)) and Singapore Telecom ((SGT)) both saw short increases last week despite having matched each other out on ups and downs in recent times. IIN shorts rose 2.0ppt to 4.5% from 2.5% and SGT shorts rose 1.3ppt to 8.4% from 7.1%.

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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CHARTS

ACR FMG IVC LYC MIN NUF

For more info SHARE ANALYSIS: ACR - ACRUX LIMITED

For more info SHARE ANALYSIS: FMG - FORTESCUE LIMITED

For more info SHARE ANALYSIS: IVC - INVOCARE LIMITED

For more info SHARE ANALYSIS: LYC - LYNAS RARE EARTHS LIMITED

For more info SHARE ANALYSIS: MIN - MINERAL RESOURCES LIMITED

For more info SHARE ANALYSIS: NUF - NUFARM LIMITED