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The Short Report

Australia | Jan 22 2015

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:

Please note: This, the first FNArena Short Report for 2015, is not a regular weekly but rather spans the period of the summer break, noting changes in our short position table from the last report of 2014, published on December 18, to positions as of yesterday as reported by ASIC. Note, too, that ASIC is still revamping its short reporting system, and as such the data currently showing in the ASIC Shorts section of the FNArena website is out of date. As of next week, the FNArena Short Report will return to its regular, weekly format.

Given the time period covered, today's "Movers and Shakers" wrap will be purely numerical rather than contextual.

Month ending January 21, 2015.

From the close on December 18 to the close yesterday, the ASX200 is up 183 points. Obviously, however, there has been much volatility among sectors, specifically resources on the back of commodity price falls. Falls in resource sector share prices have led to a round of profit-taking by the shorters, resulting in short position reductions over the period — some quite substantial — for Atlas Iron, Mineral Resources, Medusa Mining, Kingsgate Consolidated, Regis Resources and Paladin Energy. By contrast nevertheless, Atlas rival Mt Gibson Iron has now jumped up into our 5% plus table while Cooper oil junior Senex Energy, which has just posted a weak December quarter report, has suffered a significant short increase.

The only other sector to see notable movements in short positions over the period is consumer discretionary, where once again the moves have been mixed. Myer still reigns supreme as the most shorted stock on the ASX at 17.7% (up from 16.3%), and daylight comes second ahead of UGL ((UGL)) on 12.9%. Once high-flying Super Retail has now become a target of the shorters, jumping sharply into the elite 10% plus club. Perennial shorters' favourite JB Hi-Fi remains in that club, but has seen a reasonable drop in short positions.

It is worth noting that the number of stocks carrying short positions in excess of 10% has reduced to eight from eleven over the period.

Weekly short positions as a percentage of market cap:

10%+

MYR   17.7
UGL    12.9
SUL    11.9
ACR    11.6
MTS    11.3
AGO   10.4
JBH     13.0
COH   10.3    

In: SUL           Out: KCN, RRL, MIN, MML

9.0-9.9%

FMG, CDD, RRL, WHC, NXT, KCN, PBG

In: KCN, RRL, CDD, NXT, PBG                 Out: SUL, PDN

8.0-8.9%

ALQ, BCI, MIN, SXY, CAB, SGM, KAR, TRS

In: MIN, SXY, TRS   Out: CDD, NXT, PBG

7.0-7.9%

VRT, MSB, MND, ASL

In: MSB          Out: TRS, WSA, FLT, DSH, EVN

6.0-6.9%

DSH, FLT, GNC, MGX, DOW, ORI, PRY, MRM, CRZ

In: DSH, FLT, MGX, PRY, MRM                Out: MSB, BDR, NWS

5.0-5.9%

NWH, NWS, JHC, TEN, SXL, GWA, MML, BDR, VET, TPI, SIR, BRU

In: MML, BDR, NWS, NWH, JHC, VET, TPI, BRU    Out: SXY, PRY, MRM, ILU, SLR
 

Movers and Shakers

In retail, Myer ((MYR)) shorts have increased to 17.7% from 16.3% and Super Retail ((SUL)) shorts have increased to 11.9% from 9.5% while JB Hi-Fi shorts have reduced to 10.3% from 13.0%.

In resources, reductions in short positions have been experienced by Atlas Iron ((AGO)), to 10.4% from 11.2%, Mineral Resources ((MIN)), to 8.3% from 10.5%, Medusa Mining ((MML)), to 5.2% from 10.0%, Kingsgate Consolidated ((KCN)), to 9.0% from 11.2%, Regis Resources ((RRL)), to 9.4% from 11.1%, and Paladin Energy ((PDN)), from 9.7% to 4.7%.

By contrast, Senex Energy ((SXY)) shorts have increased to 8.3% from 5.5% and Mt Gibson Iron ((MGX)) shorts have increased to 6.6% from a level previously below 5.0%.

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

KCN MGX MIN MYR PDN RRL SUL

For more info SHARE ANALYSIS: KCN - KINGSGATE CONSOLIDATED LIMITED

For more info SHARE ANALYSIS: MGX - MOUNT GIBSON IRON LIMITED

For more info SHARE ANALYSIS: MIN - MINERAL RESOURCES LIMITED

For more info SHARE ANALYSIS: MYR - MYER HOLDINGS LIMITED

For more info SHARE ANALYSIS: PDN - PALADIN ENERGY LIMITED

For more info SHARE ANALYSIS: RRL - REGIS RESOURCES LIMITED

For more info SHARE ANALYSIS: SUL - SUPER RETAIL GROUP LIMITED