The Short Report – 09 Dec 2021

This story features INGHAMS GROUP LIMITED, and other companies. For more info SHARE ANALYSIS: ING

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

Summary:

By Greg Peel

Week Ending December 2, 2021.

Last week the ASX200 dropped like a stone on the omicron news, hitting its low at week’s end. As of yesterday, the index is back where it started.

Aside from Kirkland Lake Resources ((KLA)), which saw its shorts jump to 18.9% from 11.6%, but that's all about cross-border arbitrage and thus can be ignored, there was little movement at the top of the table.

Lower down, it’s a different story.

Let’s get Inghams Group ((ING)) out of the way first, which I highlighted last week after its shorts fell to 5.2% from 7.8% the week before. Last week it was back at 7.1%, so probably a blip in the ASIC data.

More realistically, shorts in Cooper Energy ((COE)) fell to 6.9% from 8.9% after omicron had oil prices tanking, all oil & gas companies being trashed, and Cooper Energy shares in particular down -11% in the week, prompting profit-taking from shorters.

Similarly but for a different reason, Electro Optical Systems ((EOS)) dropped -16% and its shorts to 6.5% from 8.6%, because at the first sign of descent, investors first jettison smaller high-risk stocks. Shorters grabbed the opportunity.

It was a different story nonetheless for Appen ((APX)), which saw its shorts rise to 7.7% from 5.7%. See below.

Weekly short positions as a percentage of market cap:

10%+
KLA    18.9
FLT     13.8
KGN   11.7
RBL    11.3

No changes    

9.0-9.9

Z1P, WEB, MSB

No changes
           
8.0-8.9%

OBL

In: OBL          Out: COE, EOS

7.0-7.9%

BHP, APX, PNV, MND, TPW, ING

In: APX, ING             Out: OBL

6.0-6.9%

COE, EOS, AMA, MTS, BET

In: COE, EOS             Out: MND

5.0-5.9%

A2M, BPT, TGR, NEA

In: TGR, NEA                        Out: APX, ING, RSG

Movers & Shakers

Appen can be classed alongside Electro Optical Systems as a small, high-risk tech company, in this case specialising in AI and machine learning. Appen shares dropped as much as -20%, but this time short positions were increased rather than decreased.

Part of Appen’s business is its Relevance segment, which offers annotated training data used as an input to enhance the performance of search engines, social media, and e-commerce applications.

In recent discussion with industry contacts, Macquarie noted on November 26 (omicron day) it had observed a trend in which some big-tech companies are looking to directly crowd-source for annotation. This is in preference to using third party annotation companies including Appen.

To that end the broker downgraded its rating on Appen to Underperform from Neutral, and cut its target to $9.50 from $11.80.

The stock bottomed out this week at $9.16, having fallen from $11.68, and is currently at $9.53.

ASX20 Short Positions (%)

Code	Last Week	Week Before	Code	Last Week	Week Before
ALL	0.0	0.0	MQG	0.3	0.3
ANZ	0.6	0.6	NAB	0.8	0.7
APT	0.9	0.9	NCM	0.5	0.5
BHP	7.9	7.4	RIO	0.3	0.4
BXB	0.3	0.6	TCL	0.4	0.3
CBA	0.7	0.7	TLS	0.2	0.2
COL	0.4	0.5	WBC	1.2	1.1
CSL	0.2	0.3	WES	0.2	0.3
FMG	2.5	2.7	WOW	0.5	0.7
GMG	0.0	0.0	WPL	1.6	1.4

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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