The Short Report

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:

Week ending December 4, 2014.

The selling witnessed earlier in November on falling commodity prices returned big time last week as oil prices plunged, and a falling Aussie dollar prompted yet another foreign investor exodus. The crunch roused shorters into action, from both sides of the ledger. It was a good opportunity for shorters to take profits on some of their most popular stocks, such as beaten down retail and iron ore miner names, hence the big short reductions last week were for the likes of Myer, Metcash, Fortescue, Atlas Iron and BC Iron. Myer nevertheless retains its number one shorted position by a decent margin.

But the falls in many individual names only spurred shorters on to increase positions, which is evident in the sea of red in the table below. Most of the moves represent bracket-creeping up the percentage bands but big increases were seen for Medusa Mining, which has joined the 10% plus shorted club, Whitehaven Coal, Cardno and Graincorp. What had been a very quiet period for short activity, either way, in the post earnings season lull has shifted now into somewhat of a frenzy as hopes of a Santa Rally fade away on plunging oil prices.

Weekly short positions as a percentage of market cap:

10%+

MYR   16.3
JBH     13.1
ACR    12.6
UGL    12.3
MTS    12.0
AGO   11.5
KCN   11.4
RRL    11.2
PDN    10.7
MIN    10.6
NWS   10.4
COH   10.1
MML   10.1    

In: MML        

9.0-9.9%

NXT

In: NXT          Out: FMG, BCI

8.0-8.9%

WHC, SGM, FMG, PBG, SUL

In: WHC, FMG          Out: MML

7.0-7.9%

MND, CDD, ALQ, TRS, WSA, BCI, MSB, CAB, DSH, EVN, KAR, FLT, BDR, ASL

In: BCI, CDD, TRS, MSB, KAR, FLT, BDR, ASL             Out: WHC

6.0-6.9%

VRT, GNC, CRZ, ORI

In: GNC, ORI             Out: CDD, TRS, MSB, KAR, FLT, BDR, ASL, ILU, MRM

5.0-5.9%

ILU, MRM, PRY, SXL, DOW, SLR, TEN

In: ILU, MRM                       Out: GNC, ORI
 

Movers and Shakers

Myer ((MYR)) did not escape the big foreign sell-off last week, and having gradually built positions for some time, shorters used the opportunity to take some profits. Myer shorts dropped 1.8ppt to 16.3% from 18.1% but this was not enough, by a margin, to knock the department store off the top of the most shorted table.

Metcash ((MTS)) released its full-year earnings result last week and largely met analyst expectations, but a cut to FY15 guidance was enough to see MTS sold off heavily, aided by the general selling tone. Again the shorters took the opportunity to cash in, reducing MTS shorts by 1.7ppt to 12.0% from 13.7%.

The Myer and Mestcash short reductions now mean JB Hi-Fi ((JBH)) moves into place as second most shorted stock, assuring a consumer discretionary one-two ahead of Christmas.

Iron ore miners Fortescue Metals ((FMG)), Atlas Iron ((AGO)) and BC Iron ((BCI)) have drawn shorters like moths to the flame as the iron ore price has fallen, but shorters decided in last week’s rout it might be time to take some profits off the table. FMG shorts fell 1.0ppt to 8.7% from 9.7%, AGO shorts fell 1.7ppt to 11.5% from 13.2%, and BCI shorts fell 1.5ppt to 7.5% from 9.0%.

Medusa Mining ((MML)) has become popular among shorters as both a play on a volatile gold price, and the risks associated with the company’s promising but uncertain Co-O mine in Turkey. MML has been quietly moving up the charts for a while now, and last week finally snuck into the elite 10% plus club with a 1.2ppt gain to 10.1% from 8.9%.

Iron ore and coal have drawn all the attention of late but the coal industry has not been without its issues either. This brings Whitehaven Coal’s ((WHC)) level of gearing into focus, despite strong cash flow from its Narrabri mine. Last week the shorters pushed WHC shorts up by 1.1ppt to 8.9% from 7.8%.

Mining service provider Cardno ((CDD)) has seen its shares continue to tank since the company issued a profit warning the week before, and this has only encouraged the shorters to further build their positions. CDD shorts rose 1.4ppt last week to 7.7% from 6.3%.

There’s been some heavy rain seen on the east coast this past week or so which might prove promising for the 2015 summer crop, but 2014 has seen mostly drought and that’s not good for Graincorp ((GNC)). GNC shorts rose 1.0ppt to 6.3% from 5.3% last week.

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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