The Short Report

This story features SEEK LIMITED, and other companies. For more info SHARE ANALYSIS: SEK

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 15, 2015.

Last week opened with the ASX hitting a post-correction peak under 5300 having rebounded from the new correction low the week before. The index then slipped back, and has since been struggling to meaningfully move above the break-out level of 5200.

Shorting activity was thin last week with nearly all the reds and greens below resulting only from minor bracket creep. The exceptions were Myer, which saw a bounce-back in shorts after a recent reduction, and Orica, which enjoyed a reduction, although both remain well inside the 10% plus club.

Last week I highlighted a steady move up for Seek ((SEK)) shorts and this week we note, that with just a slight increase, Seek is now a 10% plus club member, just.

Another slow but steady mover over recent times has been Woolworths ((WOW)) and while again, Woolies only saw a slight tick up last week, the increase did introduce the supermarket to the 9% bracket.

Weekly short positions as a percentage of market cap:

10%+

MTS    21.6
SGH    17.2
MYR   15.8
MND   15.0
ORI     14.2
FLT     14.0
MIN    13.8
DSH    13.0
CAB    12.7
PRY    12.3
AWE   11.9
JBH     11.7
GEM   11.2
SUL    10.7
GXL    10.6
SEK    10.0

In: SEK           Out: WOR, MRM

9.0-9.9%

MRM, WOR, CDD, AWC, NEC, WOW, UGL
 
In: MRM, WOR, WOW                     Out: SEK                   

8.0-8.9%

MGX, ARI, MSB, IVC, STO, FMG, WSA

Out: WOW

7.0-7.9%

ALQ, KAR, PRG, NVT, RGF, WHC

In: PRG, NVT            , RFG              Out: VOC

6.0-6.9%

NWH, VOC, SPO, KCN, GWA, PDN, BKN, DLS, TFC

In: VOC, DLS                        Out: NVT, RFG, PRG, SGM, NWS

5.0-5.9%

CAR, NWS, SGM, SGN, SVW, SWM, SXY, NXT, IFL, SYR, CVO, AAD, IMF, JHC, AAC, TEN, CQR

In: NWS, SGM, SYR, AAC              Out: DLS, RRL, OFX, ILU

Movers and Shakers

Long suffering department store relic Myer ((MYR)) had seen a rare reduction is short positions a couple of weeks ago, having failed to recover from its big sell-off following a weak profit result. This profit-taking only took Myer to a little further down the 10% table from the top, nonetheless.

Last week the stock did finally begin to enjoy some recovery, and toward the end of the week the company announced CEO remuneration would now include a sales per square metre performance metric. It seems, however, that the rally has only sparked shorters’ interest once more, as last week Myer shorts rose 1.4 percentage points to 15.8% from 14.4%.

Explosives manufacturer Orica ((ORI)) has been hanging around in the 10% club for some time now, toward the top end. With the coal industry one of the company’s biggest customers, and coal prices remaining depressed, the outlook is subdued. Orica remains in the 10% plus club this week but for no obvious reason has seen its shorts drop 1.0ppt to 14.2% from 15.2%.

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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