The Short Report

Array
(
    [0] => Array
        (
            [0] => ((NWS))
            [1] => ((WES))
            [2] => ((APA))
            [3] => ((AGO))
            [4] => ((CKA))
            [5] => ((KCN))
            [6] => ((BKN))
            [7] => ((SLR))
            [8] => ((WTF))
            [9] => ((DJS))
            [10] => ((LNC))
            [11] => ((MYR))
            [12] => ((WEB))
        )

    [1] => Array
        (
            [0] => NWS
            [1] => WES
            [2] => APA
            [3] => AGO
            [4] => CKA
            [5] => KCN
            [6] => BKN
            [7] => SLR
            [8] => WTF
            [9] => DJS
            [10] => LNC
            [11] => MYR
            [12] => WEB
        )

)

This story features NEWS CORPORATION, and other companies.
For more info SHARE ANALYSIS: NWS
The company is included in 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, November 21, 2013.

FNArena was faced with a dilemma last week with regard to the weekly Short Report when noting that thirteen stocks which registered short position decreases of a percentage point or more the week before suddenly saw all those positions reverse, in some cases to the equivalent second decimal point, last week. This seemed all too coincidental to FNArena, thus raising suspicions about the accuracy of both sets of numbers. FNArena contacted ASIC to air its concern but the regulator chose to remain at arm's length (or ignore the problem), to wit:

"I would draw you attention to the [ASIC webpage], wherein it states that ASIC's aggregated short position reports are reliant on the accuracy of reports we receive from individual short sellers. In particular, we are unable to verify the accuracy of all individual reports submitted to ASIC, nor to verify that all short sellers in our market (both in Australia and overseas) are lodging reports."

Through to the keeper.

Meanwhile, a greater level or normalcy returned to short movements last week and presumably we can dismiss the above-mentioned thirteen as never having happened. Short activity has quietened down now most larger cap companies have reported their FY13 results and the AGM season is drawing towards a conclusion. The table below shows NWSLV as the most shorted security but relates only to the untangling of the old News Corp ((NWS)) A and B shares in the demerger. Second and third positions in the table are taken by exchange traded funds (QRE and SSO) which may represent straight shorts but likely represent pairs trades against their constituents. This week Wesfarmers ((WES)) non-ordinary shares also feature (see below).

Otherwise, there were two weekly short increases of one percentage point or more and one decreases. Four monthly short increases of 2ppt or more met five decreases, with all names being familiar and featuring last week.

Weekly Short Increases

Top of the list this week is an increase in Wesfarmers Deferred Settlement shares (WESDA). The company this month announced the consolidation of its ordinary and partly protected shares so an increase in WESDA shorts to 3.45% from 1.33% last week would represent an arbitrage play on that consolidation and not a short play on Wesfarmers per se.

Shorts in APA Group ((APA)) increased to 2.49% from 1.39%

“A lack of clarity around several issues that need to be addressed” sees Macquarie retaining a Neutral rating despite the company last week reiterating FY14 guidance. Deutsche Bank (Buy) is backing APA to benefit from the decline of Cooper gas and the rise of east coast gas but stands alone in the FNArena database among three Sells and four Holds (or equivalent).

Shorts in Atlas Iron ((AGO)) increased to 8.37% from 7.32%

Atlas is rapidly becoming a shorters’ favourite although has not quite reached the Top 20 table just yet. Atlas shares continue to ride high on solid iron ore prices, but despite iron ore prices being volatile, shorters may well be eyeing off the company’s dire need to secure rail access in order to convert its production into sales.

Weekly Short Decreases

Shorts in Cokal ((CKA)) decreased to 0.02% from 3.93%

This short reduction represents basically the full position established over the previous month. Cokal shares staged a rally over the week in question.

Monthly Short Increases

Shorts in Atlas Iron increased to 8.37% from 3.97%

See above.

Shorts in Kingsgate Consolidated ((KCN)) increased to 14.38% from 10.36%

Kingsgate has effectively become the second most shorted stock in the market after Cochlear, if we don’t count News Corp-related untangling and ETFs. The market is clearly anticipating a capital raising will be required to fund the company’s ongoing development plans in a weak gold market.

Shorts in Bradken ((BKN)) increased to 11.77 from 9.07%

Shorts in Bradken have been on the rise for a while. A shorters’ favourite, sitting at number 9 on the Top 20, Bradken’s AGM suggested a heavy reliance on an expected second half skew. Traders don’t like backing skews (witness WorleyParsons).

Shorts in Silver Lake Resources ((SLR)) increased to 4.56% from 2.57%

Early in the month gold/copper producer Silver Lake posted a quarterly production report which beat estimates, and reiterated FY14 guidance. The gold price has since fallen and copper price has not done much better, sending SLR shares further south.

Monthly Short Decreases

Shorts in Wotif.com ((WTF)) decreased to 3.85% from 8.18%

The short play put in place following the company’s less than convincing AGM last month continues to unwind on a falling WTF price, albeit some price consolidation was seen last week.

Shorts in David Jones ((DJS)) decreased to 9.02% from 11.47%

Both David Jones (19) and Myer (8) remain in the Top 20 but have seen short-covering since their respective quarterly sales reports surprised the market and the shares rallied on an assumption of improved consumer sentiment. DJs was considered the more promising of the two and is at risk of dropping out of the Top 20 after a long tenure. Myer has a bit more work to do.

Shorts in Linc Energy ((LNC)) decreased to 0.72% from 3.04%

Linc is moving its listing to the Singapore Exchange.

Shorts in Myer ((MYR)) decreased to 12.32% from 14.48%

See David Jones above.

Shorts in Webjet ((WEB)) decreased to 1.95% from 3.96%

Webjet shares took a tumble last week following a profit downgrade announced at the company’s AGM. The shorters have taken profits.

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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