The Short Report

Array
(
    [0] => Array
        (
            [0] => ((DNA))
            [1] => ((OMI))
            [2] => ((AGO))
            [3] => ((MYR))
            [4] => ((ACR))
            [5] => ((NWS))
            [6] => ((UGL))
            [7] => ((MND))
            [8] => ((VET))
            [9] => ((ARI))
            [10] => ((CRZ))
        )

    [1] => Array
        (
            [0] => DNA
            [1] => OMI
            [2] => AGO
            [3] => MYR
            [4] => ACR
            [5] => NWS
            [6] => UGL
            [7] => MND
            [8] => VET
            [9] => ARI
            [10] => CRZ
        )

)

This story features MYER HOLDINGS LIMITED, and other companies.
For more info SHARE ANALYSIS: MYR
The company is included in ASX300 and ALL-ORDS

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 September 18, 2014.

Last week the "Sell Australia" trade continued. The result was further general weakness across the market but if we look at last week's movements in short positions we see stories that are more stock-specific rather than suggesting weakness-led profit-taking on short positions. The stand-out last week, for example, was iSentric, the entity being spun out of Donaco International. It has shot to the top of the most shorted table with a bullet, at 21.6%, but presumably once the shorters get their scrip the trade will just as quickly close.

Meanwhile, the incumbent most shorted stocks otherwise have a new leader this week in Myer, which continues to suffer from a weak profit result, knocking Atlas Iron down to third as shorters took profits amidst the tumbling iron ore price action. Arrium announced a capital raising last week, prompting an increase in shorts ahead of allocation of new shares as an arbitrage play. Arrium is a new entrant this week to the 5% plus shorted table, as is Carsales.com.
 

Weekly short positions as a percentage of market cap:

10%+

OMI    21.6
MYR   15.9
ACR    14.3
AGO   13.8
COH   11.7
MTS    11.4
JBH     11.0
PDN    10.6
NXT    10.1

In: OMI           Out: NWS

9.00-9.99%

NWS, TRS, RRL

Out: MND

8.00-8.99%

ILU, CAB, MND, FMG

In: MND         Out: DSH

7.00-7.99%

BKN, MIN, WHC, KAR, DSH, BLY, UGL, WSA

In: DSH, UGL                        Out: VET, MSB

6.00-6.99%

ASL, NUF, KCN, ARI, SGM, BRU, MSB, VET

In: VET, MSB, KCN, ARI                Out: UGL

5.00-5.99%

FLT, LYC, BCI, VRT, ALQ, SXL, TEN, OZL, SPL, CRZ

In: CRZ                       Out: KCN

Movers and Shakers

Vietnamese casino operator Donaco International ((DNA)) has spun off the mobile payments and banking technology business it acquired late last year, iSentric ((OMI)). It would appear those holding DNA are not particularly keen on holding OMI and hence shorts in the spun-off entity jumped 18.9ppt last week to 21.6%, which would represent a pre-sale ahead of receiving the new scrip. This has temporarily shot OMI to the top of the most shorted list, by a mile, but this will no doubt prove a short visit.

The damage wreaked on Atlas Iron ((AGO)) by the plunging iron ore price is paying off for the shorters, who last week reduced positions by 1.5ppt to 13.8% from 15.4%. On the other hand, warning signals inherent in Myer’s ((MYR)) recent weak earnings result continue to reverberate, with shorts in MYR rising 2.6ppt to 15.9% from 13.3% last week.

Thus if we ignore OMI’s likely brief stay, we can otherwise say Myer is now the most shorted stock on the ASX. Atlas has fallen into third on its short reduction, leaving Acrux ((ACR)) with the silver this week.

Long-time Top Ten incumbent News Corp ((NWS)) has actually dropped out of that elite club, with shorts falling 1.7ppt to 9.9% from 11.6% last week. Given News’ non-ordinary shares still remain listed ahead of the ultimate rationalisation of News listings, we can’t read anything into this other than an offset position.

UGL ((UGL)) is stock which has seen a lot of ups and downs in its shorts these past couple of months which would suggest it is likely a popular pairs trade candidate within the mining services sector. The week before last, UGL shorts fell 2.3ppt to 6.0% but last week they rebounded 1.2ppt to 7.2%. Monadelphous ((MND)) shorts fell 1.0ppt to 8.2% from 9.2% at the same time, which may corroborate the assumption.

Vocation ((VET)) shorts also reduced by 1.0ppt last week, to 6.0% from 7.0% as its share price took a tumble. Given most share prices tumbled this week there may be nothing unusual here, albeit Australia’s growing education listings may well provide pairs trade opportunities.

When a listed stock raises new equity, a common play among hedge funds is to short that stock and apply for an allocation of the new shares, thus capturing the offer discount as an arbitrage. The risk, nevertheless, is that you don’t get the number of shares you want. Last week Arrium ((ARI)) announced a capital raising and its shorts jumped 2.4ppt to 6.3% from 3.9%. The struggling iron ore and steel producer, hit by the falling iron ore price, is a new entrant to our table.

Another new entrant this week is Carsales.com ((CRZ)), which saw its shorts rise 1.4% to 5.0% from 3.6% last week. CRZ is one of the trio of internet classified success stories (Seek, REA Group), which is constantly the target of “overvalued” calls. Either the shorters are beginning to agree, or there’s a pairs trade at work in the space.

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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