The Short Report

This story features BCI MINERALS LIMITED, and other companies. For more info SHARE ANALYSIS: BCI

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 November 6, 2014.

The week before last, the ASX200 enjoyed another 100-plus points in its recovery from the earlier correction, to the important technical mark of 5500. Last week the index struggled to make further headway, to the point that this week we're seeing an exhaustion pullback. But over the week in question, we saw a market going nowhere much at all.

We recall that the week before last, shorting activity slowed right down to the point there were no movements of one percentage point up or down for stocks 5% or more shorted. Last week saw a little bit of activity return, but unfortunately I am unable to outline specific short movement values in this week's Report given ASIC is in the process of reconstructing its short disclosure service. This means the ASIC Shorts table on the FNArena website is currently out of date. I can, however, point out which stocks' shorts have clearly moved up or down among the 5% plus group by comparing one week to the next.

I can only thus apologise that this week's "Movers & Shakers", below, is a little more more vague than usual. Suffice to say notable movements last week were almost entirely restricted to the mining/mining services sectors.

Weekly short positions as a percentage of market cap:

10%+

MYR   17.6
MTS    13.8
ACR    13.7
AGO   12.6
JBH     12.5
PDN    12.0
UGL    11.4
COH   11.0
NWS   10.4
KCN   10.3
RRL    10.2

In: KCN, RRL           

9.0-9.9%

MIN, NXT, FMG

In: MIN           Out: KCN, RRL

8.0-8.9%

WHC, SGM, ILU

In: SGM          Out: MIN, KAR

7.0-7.9%

MND, MML, TRS, PBG, WSA, MSB, DSH, BCI, KAR

In: KAR, BCI             Out: SGM, ALQ        

6.0-6.9%

ALQ, SUL, ASL, EVN, CAB, BDR, CRZ, FLT, TEN

In: ALQ                      Out: VET

5.0-5.9%

SXL, VRT, BRU, SLX, OZL, MRM, CDD, SLR, PRY, DOW, VET, ORI

In: VET, VRT, OZL, ORI     

Movers and Shakers

Atlas Iron ((AGO)) is the favoured short iron ore play as iron ore prices tumble, having a higher base cost than many peers. BC Iron ((BCI)) has also been in play in recent weeks, as aside from being hit by falling prices the company decided to proceed with the takeover of Iron Ore Holdings, confounding analysts in the current environment. Shorters had already taken profits on their positions last month but despite further falls in share price, BCI has again attracted short attention.

Last week BCI jumped back into our table straight into the 7.0-7.9% bracket, suggesting a short increase of around two percentage points.

Thereafter, short increases were more a case of bracket-creep to one higher percentage bracket. Goldminers Kingsgate Consolidated ((KCN)) and Regis Resources ((RRL)) both entered the elite 10% shorted club. The market has been asking what exactly caused Kingsgate’s CEO and CFO to suddenly depart, while Regis has been having difficulties with its key Garden Well mine.

Mineral Resources ((MIN)) is another iron ore play attracting recent shorting attention in a falling iron ore price environment. Last week MIN moved into the 9% band from the 8% band, although the company does have the option to simply curtail iron ore production and live off the sale of its manganese stockpile instead.

Sims Metal Management ((SGM)) is indirectly impacted by falling steel prices, and has moved into the 8% band from 7%.

Karoon Gas ((KAR)) has not been enjoying falling oil prices, although last week’s move down into the 7% band from the 8% suggests some short profit-taking. Mineral tester ALS ((ALQ)) was thumped in September following a profit warning, but has managed to struggle back somewhat from its lows. Shorters have reduced positions, sending ALS into the 6% band from the 7%.

The one movement of note outside the resources sector is that of Vocation ((VET)), which saw its share price thumped late last month when the education provider lost a vital contract. Profit-taking sees VET shorts falling into the 5% band from the 6%.

This might also be an opportunity to note retailer Myer ((MYR)) held its position at the top of the most shorted table last week, unmoved on 17.6%, and this week saw its shares crucified on disappointing quarterly sales numbers. Will next week's Report reveal short profit-taking? Or will the shorters ride Myer to the death?

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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