The Short Report – 14 Nov 2019

Weekly Reports | Nov 14 2019

See Guide further below (for readers with full access).

By Greg Peel

Week ending November 7, 2019

The last two weeks of October and the first two weeks of November have all seen the ASX200 follow the same pattern: rally early in the week and then give it back by week’s end. The end result has been a net rally of just over 30 points within a range of 130 points.

The most surprising element of last week’s short position movements is what hasn’t moved rather than what has.

Late in October, protesters moved in to block access to the Chilean salt pans that currently provide the bulk of world lithium production. In the ensuing period, ahead of some profit-taking, locally-listed lithium miner Galaxy Resources ((GXY)) rallied 33%, Orocobre ((ORE)) rallied 21%, and Pilbara Minerals ((PLS)) rallied 36%.

It would be a no-brainer to say “short-covering”. Except that short positions in those stocks had by last week barely changed: Galaxy 16.4%; Orocobre 13.9%, Pilbara 7.2%. This would suggest (unless short-covereres have so far been too embarrassed to inform ASIC) that those rallies are all about fresh buying, and nothing to do with short-covering. The shorts are holding fast.

In terms of short position movements of one percentage or more, last week saw the sharks continue to circle kitchen & bathroom supplier GWA Group ((GWA)), up to 14.8% from 13.8% the week before, satellite company Speedcast International ((SDA)), up to 12.4% from 11.1%, and fruit & veg grower Costa Group ((CGC)), up to 11.7% from 10.0%.

In Costa’s case, an announced capital raising opens the opportunity for an arbitrage – short the stock ahead of participating in the discounted issue.

And just when we thought we had the Kirkland Lake Gold ((KLA)) story covered (US hedge fund selling), that stock is back at 12.7% shorted having dropped down to 7.0%. A glance at a one-month chart reveals a ridiculously choppy trading pattern, so it looks like every time the share price sticks its head up, hedgies slap it back down again.

The company has announced the reopening of the mill at its Cosmo mine in the NT, after exploration at what was a diminishing underground mine has justified a restart, which should please 100 laid-off workers. But that news was yesterday.

No Movers & Shakers this week.

Weekly short positions as a percentage of market cap:

10%+
SYR    17.4
GXY   16.4
GWA  14.8
ORE    13.9
ING     13.8
NXT    13.0
BOQ   12.8
KLA    12.7
SDA    12.4
CGC    11.7
JBH     11.6
WEB   10.6
DMP   10.4
BKL    10.3
HUB   10.1


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