FYI | Mar 27 2012
.ref1 {background-color:#B8E3F8;}
By Chris Shaw
When David Jones ((DJS)) reported interim earnings last week and the result included weak guidance for the full year the market was prepared, as short positions in the stock in the week from March 13 had risen to 11.67% from 10.07% previously.
The market's caution with respect to retail stocks didn't stop there, as in the same week shorts in Myer ((MYR)) rose to 12.25% from 10.02%, in The Reject Shop ((TRS)) to 7.49% from 6.04% and in Billabong ((BBG)) to 11.13% from 10.29% the week before.
Retail plays and stocks exposed to consumer spending continue to dominate in terms of the largest short positions on the ASX. Along with those companies recording significant increases for the week from March 13, the top 20 largest short positions include JB Hi-FI ((JBH)) at more than 20%, Flight Centre ((FLT)), Harvey Norman ((HVN)) and Wofit.com ((WTF)).
Also in the top 20 was Beach Energy ((BPT)), where shorts increased to 5.09% from less than 1% in a significant daily change. The increase came despite Beach the week before indicating production at a project in Egypt would commence earlier than the market had expected.
A significant increase in short positions for the week from March 13 was also seen in Southern Cross Media ((SXL)). Shorts here rose to 1.95% from less than 0.4% previously, this despite no major news from the company since what had been a generally well received interim earnings result in February.
With regards to declining short positions, the most significant in the week from March 13 was in Rialto Energy ((RIA)). Short positions for the company declined to just 0.16% from 4.5% the week before, this occurring prior to the company updating both on exploration drilling and the receipt of US$20 million in funds via a private placement to a group headed by International Finance Corporation.
The only other falls in short positions of more than one percentage point were in SingTel ((SGT)) and the partly protected shares of Wesfarmers ((WESN)). Shorts in Singtel have fallen to 5.81%, while for WESN short positions now stand at 1.59%. This is still well up from total short positions of around 0.05% in late January.
Among the monthly changes from February 20, shorts in Echo Entertainment Group ((EGP)) rose the most, increasing to 7.51% from 0.89% the month prior. This likely reflects some doubts in the market in relation to the stock being a corporate target for Crown ((CWN)) in particular.
Aside from Rialto Energy ((RIA)) the most substantial fall in monthly short positions from February 20 was in OneSteel ((OST)), where positioned declined to 2.53% from nearly 6% the month before. An equity raising by the company remains a possibility but a recent briefing left brokers with the view there is some upside from the group's iron ore operations.
Elsewhere, RBS Australia notes short positions have continued to increase in both Metcash ((MTS)) and Alumina Ltd ((AWC)), to 4.8% and 2.6% respectively. With respect to Metcash, RBS notes poor recent trading from the Franklins business is impacting on valuation, while the weak alumina market and a strong Australian dollar continue to pressure margins for Alumina.
Unlike a number of internet business peers, Seek ((SEK)) has seen short positions trend lower in recent weeks, declining to 4.51% from 6.66% in the month from February 20. Such a decline makes sense in the view of RBS, as Seek enjoys a dominant market position that should allow further yield growth and the stock is offering better value than its online classified peers at current levels.
Traders and investors should note past analysis suggests that increasing and decreasing short positions can be associated with underperformance and outperformance in the following weeks, all else being equal.
Top 20 Largest Short Positions
| Rank | Symbol | Short Position | Total Product | %Short |
| 1 | JBH | 20632949 | 98850643 | 20.86 |
| 2 | MYR | 71503784 | 583384551 | 12.25 |
| 3 | DJS | 61361240 | 524940325 | 11.67 |
| 4 | BBG | 28482505 | 255102103 | 11.13 |
| 5 | ISO | 634909 | 5703165 | 11.13 |
| 6 | FXJ | 257854099 | 2351955725 | 11.00 |
| 7 | FLT | 9150409 | 100017679 | 9.14 |
| 8 | LYC | 152970216 | 1714496913 | 8.94 |
| 9 | COH | 5026954 | 56929432 | 8.81 |
| 10 | EGP | 51722091 | 688019737 | 7.51 |
| 11 | TRS | 1947770 | 26071170 | 7.49 |
| 12 | GNS | 63258152 | 848401559 | 7.44 |
| 13 | HVN | 78149190 | 1062316784 | 7.36 |
| 14 | WTF | 14751981 | 211736244 | 6.96 |
| 15 | CRZ | 15039186 | 233674223 | 6.43 |
| 16 | TEN | 62463217 | 1045236720 | 5.97 |
| 17 | SGT | 10331967 | 176974336 | 5.81 |
| 18 | PPT | 2413030 | 41980678 | 5.77 |
| 19 | CSR | 26711472 | 506000315 | 5.28 |
| 20 | BPT | 56421021 | 1113497051 | 5.09 |
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.
Technical limitations
If you are reading this story through a third party distribution channel and you cannot see charts included, we apologise, but technical limitations are to blame.
Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)" – Warning this story contains unashamedly positive feedback on the service provided.
