The Short Report

This story features SYRAH RESOURCES LIMITED, and other companies. For more info SHARE ANALYSIS: SYR

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 July 18, 2019

Last week saw the ASX200 begin its run towards a new high.

Activity in short position movements picked up a bit last week. Some of those reds and greens below are just bouncing back and forth between brackets but there were a few more significant movements.

Longstanding table-topper Syrah Resources ((SYR)) has been usurped by Nufarm ((NUF)), not because Nufarm shorts much increased but because Syrah shorts fell to 15.6% from 19.3%. See below.

While graphite might be back in favour, lithium is not, with all of Galaxy Resources ((GXY)), Orocobre ((ORE)) and Pilbara Minerals ((PLS)) seeing short increases.

I have noted how Speedcast International ((SDA)) shorts had dropped the past couple weeks following the company’s profit warnings and share price plunge. Speedcast shot back up to 10.4% last week from 8.9%, assuming accurate data from ASIC.

I have been following the progress of Hub24 ((HUB)) quietly up the table. It snuck into the 10%-plus shorted bracket last week.

Big movers otherwise include JB HiFi ((JBH)), to 11.7% from 13.9%, AMP ((AMP)), to 8.8% from 7.3%, and Super Retail ((SUL)), to 6.0% from 7.9% (down).

See below.

Weekly short positions as a percentage of market cap:

10%+
NUF    18.6
BAL    16.6
GXY   15.8
ING     15.8
ORE    15.7
SYR    15.6
NXT    13.2
BWX   12.1
PLS     11.8
JBH     11.7
MTS    10.6
SDA    10.4
BIN     10.3
DMP   10.2
HUB   10.0

In: SDA, HUB

9.0-9.9

BGA, HVN, IFL, RWC, CGC

In: IFL, RWC, CGC               Out: HUB, SGM
                                                                       
8.0-8.9%

IVC, SGM, PPT, AMP, CSR, WSA, BKL, KGN

In: SGM, AMP, WSA                        Out: SDA, IFL, CGC, RWC                         

7.0-7.9%

MYR, BOQ, CGF, SUL, ELD

In: ELD                       Out: WSA, AMP, SUL

6.0-6.9%

DCN, GMA, NEC, A2M, SUL

In: SUL                       Out: ELD, GWA

5.0-5.9%

GWA, COE, MSB, LNG, SXY, CLQ, CTD, OML

In: GWA                     Out: CTD
                   
Movers & Shakers

Graphite miner Syrah Resources posted a positive quarterly production report last week, featuring increased sales and lower costs, and sparking a solid share price rally.

Clearly short-covering had a part in that rally, given Syrah shorts fell to 15.6% from 19.3%.

Given no new news out of either JB Hi-Fi or Super Retail over the week, we can only assume short position falls to 11.7% from 13.9% and 6.0% from 7.9% have been inspired by rallies in both stocks, reflecting the retail sentiment boost provided by the election result, tax cuts and RBA rate cuts.

Professor Brian Cox seems to be on Aussie TV every time you turn it on, being best known as the keyboard player from D:Ream, who once sang “Things can only get better”. Clearly Brian does not have shares in AMP.

The embattled wealth manager/insurer had set its own d:reams on selling off the farm to pay for cleaning up the carnage left behind, only to find the planned sale of its Life division kyboshed by the Kiwis. AMP may need to raise new equity.

Hands up?

AMP shorts rose to 8.8% from 7.3%.

ASX20 Short Positions (%)

Code	Last Week	Week Before	Code	Last Week	Week Before
AMC	1.3	1.5	RIO	4.7	4.5
ANZ	0.7	0.5	S32	0.9	0.9
BHP	2.8	2.8	SCP	0.6	0.8
BXB	0.2	0.1	SUN	0.4	0.4
CBA	1.1	1.1	TCL	0.9	0.9
COL	1.4	1.4	TLS	0.4	0.4
CSL	0.5	0.4	WBC	1.3	1.3
IAG	0.7	0.8	WES	1.5	1.4
MQG	0.9	0.8	WOW	1.4	1.4
NAB	0.6	0.5	WPL	0.7	0.7

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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