The Short Report

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    [0] => Array
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            [0] => ((COH))
            [1] => ((WES))
            [2] => ((FXJ))
            [3] => ((NWH))
            [4] => ((EHL))
            [5] => ((GXY))
            [6] => ((MMS))
            [7] => ((TSE))
            [8] => ((IVC))
            [9] => ((VAH))
            [10] => ((FLT))
            [11] => ((ASL))
            [12] => ((BKN))
            [13] => ((SGT))
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    [1] => Array
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            [0] => COH
            [1] => WES
            [2] => FXJ
            [3] => NWH
            [4] => EHL
            [5] => GXY
            [6] => MMS
            [7] => TSE
            [8] => IVC
            [9] => VAH
            [10] => FLT
            [11] => ASL
            [12] => BKN
            [13] => SGT
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)

This story features COCHLEAR LIMITED, and other companies.
For more info SHARE ANALYSIS: COH
The company is included in ASX50, ASX100, ASX200, ASX300 and ALL-ORDS

Guide:

The Short Report draws upon data provided by the Australian Securities & Investment Commission (ASIC) to highlight significant weekly and monthly moves in short positions registered on stocks listed on the Australian Securities Exchange (ASX).

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.

Summary:

Period: Week to, and month to, September 26, 2013.

Shorting activity has begun to subside for now following a rash of result season and election-related increases and decreases. Only two stocks saw short increases of one percentage point or more during the week, with four stocks posting decreases. Mining service providers continue to feature amongst the decreases, both weekly and monthly, with shorts being covered in the wake of some well-received results. NRW, Emeco, Ausdrill and Bradken all count among this number. On the increase side, Cochlear has shot to the top of the most shorted table as the market anticipated, correctly, that the company would miss out on a Chinese contract. Wesfarmers is a new name this week, attracting some short interest.

Monthly moves continue to reflect the post result season responses, with the likes of Flight Centre and Fairfax slipping down the table and Transfield still showing as a new shorters favourite. Monthly short decreases of two percentgae points or more outnumbered increases by four to seven during the week. There has been no change to the make-up of the Top 20, just a few positional swaps.

Weekly Short Increases

Shorts in Cochlear ((COH)) increased to 14.45% from 12.70%

The market continues to like Cochlear even if brokers don’t, with the stock remaining stoically resilient to bad news. The FNArena database shows two Hold ratings and six Sells on COH, with competitor Advanced Bionics recently boasting increased market share in Europe. Brokers were also expecting last week COH would miss out on a Chinese tender, and have since been proven correct. The shorts continue to build, with COH moving to the top of the most shorted list.

Shorts in Wesfarmers ((WES)) increased to 2.80% from 1.63%

Wesfarmers has tracked an upward trajectory since June, with the market looking ahead to increasing consumer confidence post RBA rate cuts and the election. There was no new news in the week in question, but the shorters have started to take an interest. Four database brokers rate WES a Sell, against two Buys.

Weekly Short Decreases

Shorts in Fairfax Media ((FXJ)) decreased to 11.32% from 13.32%

Fairfax has long been a shorters favourite, and remains at number five on the Top 20 list despite this reduction. FXJ held the number two spot the week before but a fall in share price over the week in question has seen some short positions crystallised. The stock attracts four from seven Sell ratings.

Shorts in NRW Holdings ((NWH)) decreased to 4.33% from 5.57%

Mining services companies are popular with shorters in the post capex peak era, but a contract win at the Roy Hill iron ore mine saw NRW shares jump over the week in question, scaring a few of the naysayers off. NRW attracts only one Buy rating from five covering brokers.

Shorts in Emeco Holdings ((EHL)) decreased to 2.07% from 3.27%

Another service provider, Emeco shot up after a well-received result in late August but has since stalled. The shorters are perhaps losing patience.

Shorts in Galaxy Resources ((GXY)) decreased to 0.62% from 1.73%

Galaxy made a share placement back in August, and placements often inspire short arbitrage activity. The window has now closed. GXY is not covered by FNArena database brokers.

Shorts in McMillan Shakespeare ((MMS)) decreased to 1.58% from 2.64%

Since the market correctly picked an election victory for the Coalition, a rebounded McMillan has been drifting off ever since on a “sell the fact” trade. The shorters have been cashing in.

Monthly Short Increases

Shorts in Cochlear increased to 14.45% from 10.31%

See above.

Shorts in Transfield Services ((TSE)) increased to 9.69% from 6.17%

When Transfield jumped solidly on a well-received result, the shorters backed the possibility the company may yet need to raise equity. The monthly numbers continue to reflect this trade, albeit TSE has slipped to 11 from 8 on the Top 20.

Shorts in Invocare ((IVC)) increased to 6.12% from 3.03%

Invocare took a dive back in August following a disappointing full-year result which highlighted a surprisingly lower number of Aust/NZ departures from this earth than could normally be relied upon. This defensive stalwart has gained ground since but the shorters are possibly playing off against cyclicals as the market becomes more risk friendly.

Shorts in Virgin Australia ((VAH)) increased to 5.81% from 3.52%

This monthly move continues to reflect the increase in shorts Virgin attracted after a well-received result sparked a share price jump. Brokers are not too convinced in VAH’s upside either, and the stock has more recently drifted lower.

Monthly Short Decreases

Shorts in Flight Centre ((FLT)) decreased to 3.21% from 8.05%

Flight Centre shares have mostly risen post another impressive result in August which caught out the shorts, and subsequently FLT has dropped out of the Top 20 most shorted, where it had spent plenty of time, and continues to fall down the table.

Shorts in Fairfax Media decreased to 11.32% from 14.97%

See above.

Shorts in NRW Holdings decreased to 4.33% from 7.14%

See above.

Shorts in Ausdrill ((ASL)) decreased to 4.30% from 6.94%

The shorters were forced to scramble for cover when Ausdrill posted a solid result, sparking a share price rally of over 100%. The monthly numbers continue to reflect the short-covering.

Shorts in McMillan Shakespeare decreased to 1.58% from 4.02%

See above.

Shorts in Bradken ((BKN)) decreased to 8.29% from 10.72%

Bradken was another service provider enjoying a share price jump after a decent result. This monthly move continues to reflect subsequent short-covering, albeit BKN has moved up to notches on the Top 20 to 17.

Shorts in Singapore Telecom ((SGT)) decreased to 0.38% from 2.40%

SingTel shorts have been quietly reducing since the election as the share price has risen, likely reflecting greater potential under the Coalition’s NBN policy.

Top 20 Largest Short Positions

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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