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The Short Report

Weekly Reports | May 17 2018

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 May 10, 2018

Last week saw the ASX200 reach, but fail to close above, the post-GFC high of 6135, despite a couple of forays intraday. The index is currently consolidating at this lofty level rather than turning tail, and it is now becoming evident the shorters are starting to hurt.

To that end, we note that only yesterday, Domino’s Pizza ((DMP)) and JB Hi-Fi ((JBH)) posted the second and third gains among ASX200 stocks while Myer ((MYR)) jumped 16%. Those stocks were, as at last week, respectively the second, third and fifth most shorted stocks on the market. We’ll keep an eye out in next week’s numbers.

Last week, as the table below indicates, there were a lot more short position reductions than increases.

Last week shorters continued to bail from Nanosonics ((NAN)) in the wake of FDA approval for the company’s disinfectant product. Having fallen to 13.1% from 14.1% the week before, last week Nanosonics shorts fell to 11.6%.

Healthscope ((HSO)) has now received a counter takeover offer. Last week Healthscope dropped off the 5% plus shorted table from 6.2%.

Shorts in Afterpay Touch ((APT)) plunged to 7.3% from 9.7%.

Shorts in Metals X ((MLX)) fell to 6.8% from 8.3%.

On the flipside, a profit warnings and subsequent -22% share price plunge for Greencross ((GXL)) only served to invigorate the shorters. Rather than falling on profit-taking, Greencross shorts jumped to 8.5% from 6.7%.

Shorts in G8 Education ((GEM)) rose to 8.5% from 7.4%.

See below.

Weekly short positions as a percentage of market cap:

10%+

SYR    20.9
DMP   16.3
JBH     16.2
GXY   14.5
MYR   11.9
VOC   11.7
NAN   11.6
ORE    11.4
AAC   11.1
NWS   11.1
BWX   10.8
IVC     10.6
RFG    10.6
HT1     10.3
IGO     10.2
APO    10.1

No changes                                        

9.0-9.9

MYX

Out: APT, FLT, AAD                                                                                               

8.0-8.9%

HVN, GEM, GXL, AAD, FLT, BIN

In: AAD, FLT, GEM, GXL, BIN                  Out: PLS, MLX, WEB, IPH

7.0-7.9%

IPH, BGA, MTS, GMA, PLS, WEB, TGR, IFL, APT, CSR, TPM

In: APT, IPH, PLS, WEB, IFL          Out: GEM, BIN

6.0-6.9%

ING, MLX, PRY, BKL, QUB, BAP, SEK

In: MLX                      Out: GXL, IFL, HSO, NSR, KAR

5.0-5.9%

BOQ, NSR, BEN, KAR, RSG, SFR, SUL, CCP, IMF, MYO, NXT, MOC, AHG

In: NSR, KAR                        Out: JHC, NUF, MQA, IRE

                       
Movers & Shakers

The share price of payment system disruptor Afterpay Touch enjoyed a brief spike last week before falling back. This week saw another spike up.

Afterpay had moved steadily up the 5% plus shorted table for many weeks as questions were raised over the sustainability of the company’s business model. Stockbroker Morgans has nevertheless been talking up Afterpay’s prospects and last week the shorters began to bail, reducing positions to 7.3% from 9.7%.

This week the company announced its US launch, with first customer off the blocks large retailer Urban Outfitters. We’ll see how the shorters reacted to this news next week.

The price of tin fell last week but the share price of tin miner Metals X actually rose, which may be why shorts fell to 6.8% from 8.3%.

Combining a pet barn with a veterinary clinic at a number of locations seemed to the market like a good idea a few years ago but Greencross has struggled ever since. The share price has halved since 2014 and last week fell -22% in a day following a profit warning. It appears pet owners are not choosing to visit the vet clinics.

The opportunity for profit-taking was not taken. Short positions in Greencross last week rose to 8.5% from 6.7%.

Last month the share price of child care centre operator G8 Education tumbled after the company conceded occupancy rates were continuing to disappoint in an increasingly competitive market. The stock has recovered in the recent market rally, which is providing fodder for the shorters.

G8 shorts rose to 8.5% from 7.4%.

ASX20 Short Positions (%)

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

APT DMP GEM GXL HSO JBH MLX MYR NAN