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 October 2, 2014.

The ASX200 continued to be thumped on foreign selling early last week but by week's end we did see the local bargain hunters attempting to fight back, subsequently to little avail. From a short position point of view, the highlight of the weak was nevertheless the disappointing retail sales result which affected some big increases in short positions across the sector. Myer further consolidated its position as most shorted stock on the market while Dick Smith Holdings shot up the table and rivals JB Hi-Fi and Harvey Norman also came under attack.

The weak iron ore price theme continued to play out last week although Atlas Iron shorts continue to drift lower. Shorters instead turned their attention toward BC Iron and Mt Gibson Iron while at the same time taking profits via Arrium's capital raising. Pairs trading among the embattled mining service providers continues to be a popular sport and ups and downs of individual short positions were again witnessed last week.
 

Weekly short positions as a percentage of market cap:

10%+

MYR   17.9
ACR    14.7
DSH    12.5
JBH     12.4
MTS    11.6
AGO   11.3
COH   11.1
NXT    10.2
NWS   10.2

In: DSH, NWS           Out: RRL, PDN

9.00-9.99%

MND, RRL, PDN, UGL

In: RRL, PDN, MND, UGL              Out: ARI, ILU

8.00-8.99%

FMG, ILU, KAR, TRS

In: ILU, KAR             Out: MND, UGL, CAB, MIN, BKN

7.00-7.99%

BCI, KCN, MIN, WHC, CAB

In: CAB, MIN, BCI               Out: DSH, KAR, WSA

6.00-6.99%

MSB, WSA, ASL, BKN, LYC, SGM, ALQ, BDR, FLT, NUF, PBG, VET

In: BKN, WSA, LYC, PBG               Out: BLY, BRU

5.00-5.99%

DOW, CRZ, TEN, SXL, BRU, VRT

In: BRU                      Out: BCI, LYC, PBG, SPL, EVN

Movers and Shakers

The week before last, Myer ((MYR)) moved into top spot as the most shorted stock on the ASX, ahead of last week’s August retail sales report. That report showed a disappointing 0.1% gain when economists had forecast 0.4% and the market had come to believe the retail outlook was on the up. Subsequently, MYR added another 2.0ppt in shorts to a hefty 17.9% from 15.9% to firmly consolidate top position – numbers which Cochlear once boasted in its heyday.

Myer was not the only retail stock to be targeted by shorters in the wake of the sales result. Dick Smith Holdings ((DSH)) leapt straight into the top ten at number three last week with whopping 5.2ppt increase in shorts to 12.5% from 7.3%, while rival JB Hi-Fi ((JBH)) shifted up to fourth with a 1.5ppt increase to 12.4% from 10.9%.

Special mention must also go to Harvey Norman ((HVN)), one-time top ten incumbent but more recently out of shorting fashion, which saw its shorts rise 1.3ppt to 4.2% from 2.9% to round out our retail theme for the week.

Earlier number one shorted stock Atlas Iron ((AGO)) slipped a little further down the top ten positions last week but the weak iron ore price theme is not dead. BC Iron ((BCI)) saw it’s shorts increase 1.9ppt to 7.8% from 6.9% last week while special mention goes to Mt Gibson Iron ((MGX)), which saw a 1.1ppt increase to 3.2%.

Arrium ((ARI)) is another iron ore producer in the fray but following the company’s capital raising, the shorters have cashed in on the issue and reduced ARI shorts by 7.9ppt to 1.3% from 9.2%, effectively ending the short strategy.

Fun and games continue in the mining services sector where pairs trading is a popular pursuit. Last week Monadelphous ((MND)) saw its shorts rise by 1.5ppt to 9.9% from 8.4% while on the other side of the equation, Bradken ((BKN)) shorts fell 1.5ppt to 6.5% from 8.0% and Boart Longyear ((BLY)) disappeared out of our 5% plus table with a 1.2ppt fall to 4.8% from 6.0%.

Among the miners themselves, embattled gold producer Regis Resources ((RRL)) saw its share price continue to fall last week prompting profit-taking from the shorters who had increased their positions the week before. RRL shorts fell 1.5ppt to 9.4% from 10.9%. Paladin Energy ((PDN)) is yet to see any share price benefit from the recent rebound in the uranium price but the shorters may be getting out of the way just in case. PDN shorts fell 1.6ppt to 9.2% from 10.8% last week.

Cabcharge ((CAB)) shares fell last week on news the NSW state government is considering the issue of new taxi licences, providing the opportunity for some short profit-taking. CAB shorts fell 1.1ppt to 7.2% from 8.3%.

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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