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The Short Report – 28 Oct 2021

Weekly Reports | Oct 28 2021

This story features FLIGHT CENTRE TRAVEL GROUP LIMITED, and other companies. For more info SHARE ANALYSIS: FLT

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

Summary:

By Greg Peel

Week Ending October 21, 2021.

Last week saw saw the ASX200 run steadily upward until a last-day slip, when Evergrande recommenced trading in Hong Kong.

This from last week’s report:

“The most notable aspect of last week is that there is currently no stock shorted on the ASX by 10% or more, with Flight Centre ((FLT)) dropping to 9.8% from 10.4%. This is rare, but not unprecedented. And following a weak quarterly update from the travel agent yesterday, next week’s Report might be different.”

Indeed. Last week Flight Centre shorts jumped back to 11.4% from 9.8%.

And after climbing bracket by bracket over the past weeks, Redbubble joined in too, rising to 10.2% from 9.3%. See below.

It was not long ago that the 10%-plus club persistently included Tassal Group ((TGR)), Zip Co ((Z1P)) and Kogan ((KGN)), at different times. It is notable that those three stocks have been quietly slipping down the table over past weeks.

The issue of environmentally damaging fish farming has faded from the news, and the BNPL non-believers have reassessed their theses. Amazon wannabe Kogan had a great run-up in October, the pinnacle of which came last week after the company declared it had overcome its excess inventory issues, but this week the stock has been on the slide again.

Otherwise, short positions remain relatively static.

Weekly short positions as a percentage of market cap:

10%+
FLT     11.4
RBL    10.2

In: FLT, RBL 

9.0-9.9

WEB, KLA

In: KLA                      Out: FLT, RBL, KGN
           
8.0-8.9%

MSB, EOS, ING, KGN

In: KGN          Out: Z1P

7.0-7.9%

Z1P, COE

In: Z1P            Out: TGR       

6.0-6.9%

BHP, TGR, A2M, PNV, MTS, TPW

In: TGR                      

5.0-5.9%

AMA, OBL, MND

Out: EML

Movers & Shakers

Redbubble is an online marketplace in which artisans and crafts people can offer their wares, similar to US-Based Etsy. The company has been listed since 2016 but did not hit the radar until last year, in which it enjoyed a 366% rise in share price from February to August.

While we can point to lockdowns driving a market-wide increase in online sales, and to arts and crafts activities being boosted by household imprisonment, the driving force for Redbubble in 2020 can be identified through its offerings of fashionable face masks.

The share price peaked out in January when we all thought covid was beaten, and by May Redbubble had more than halved in value. Delta arguably offered another opportunity, but the share price has done absolutely nothing for the past six months. Presumably fresh demand for masks was countered by the fact most of us already had one or more by then.

I say the share price has done absolutely nothing, but only on a six month basis. By contrast, the stock appears almost daily among either the top five index winners or losers on the day, often moving 5-6% in either direction for no apparent reason, which is why I have dubbed it a “meme stock”.

Ironically, the US meme stock bubble kicked off in January as Robinhood’s merry men and women went after heavily shorted stocks, loading up on call options. Over the past few weeks, Redbubble has moved steadily up the 5%-plus shorted table to now be the number two most shorted stock on the ASX.

ASX20 Short Positions (%)

Code Last Week Week Before Code Last Week Week Before
ALL 0.1 0.0 MQG 0.4 0.3
ANZ 0.6 0.6 NAB 0.6 0.7
APT 1.2 1.1 NCM 0.5 0.3
BHP 6.8 6.4 RIO 0.3 0.3
BXB 0.2 0.2 TCL 0.3 0.4
CBA 0.6 0.7 TLS 0.2 0.3
COL 0.7 0.7 WBC 0.8 0.7
CSL 0.2 0.2 WES 0.2 0.2
FMG 1.5 1.5 WOW 0.5 0.3
GMG 0.0 0.1 WPL 1.4 1.6

To see the full Short Report, please go to this link

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.

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

FLT KGN

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