The Short Report

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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 March 19, 2015.

The week in question was in which the ASX200 steadied after retreating from its highs, before taking off again when the Fed indicated it would not be raising its cash rate in a hurry. The Fed's dovish shift provided a boost for Australian stocks and perhaps scared a few shorters into closing out positions lest things get out of hand. There is an awful lot of green on our table today — mostly bracket creep, but as Movers & Shakers (below) explains there were also some substantial moves.

Shorters cashed in on Myer's weak result while at the same time increasing Metcash shorts, while falling oil prices saw short profit-taking in Atlas Iron and BC Iron but not so in Fortescue. On the other hand, falling commodity prices are no doubt behind Monadelphous' move up into the 10% plus shorted club, and WorleyParson's introduction into the table in the 6% bracket, while Cardno dropped out of the 10% club.

Testosterone-fuelled Acrux appears to have flown out of the 5% table altogether after a lengthy tenure, from the 9% bracket the week before, while on the other hand, goldminer Northern Star Resources has flown in from nowhere to the 7% bracket.

It is also worth keeping an eye on slow but steady bracket creepers Super Retail ((SUL)) and Woolworths ((WOW)).
 

Weekly short positions as a percentage of market cap:

10%+

MYR   17.9
MTS    16.3
MND   15.7
PRY    12.2
FMG   12.0
MIN    10.1

In: MND         Out: UGL, AGO, CDD

9.0-9.9%

ORI, UGL, FLT, AGO
 
In: UGL, AGO           Out: MND, ACR, PBG, KAR          

8.0-8.9%

SGM, JBH, KAR, CDD, SUL

In: CDD, KAR, SUL            Out: SXY, MRM, ALQ, MGX, NXT, BCI

7.0-7.9%

ALQ, WHC, SXY, PBG, MRM, NST, WOW

In: PBG, ALQ, SXY, MRM, NST, WOW    Out: SUL, JHC, KCN, MSB, DSH, CAB, ILU

6.0-6.9%

NWH, JHC, NXT, CAB, DSH, KCN, MGX, ILU, BCI, WOR, RRL

In: NXT, MGX, BCI, JHC, CAB, DSH, KCN, ILU, WOR, RRL  

Out: WOW, ASL, NWS, IIN, AWE, COH, VRT

5.0-5.9%

TPI, ARI, NWS, MSB, COH, AWE, ASL

In: MSB, NWS, COH, ASL, AWE

Out: RRL, BDR, VOC, TRS, TEN, GNC, KMD, SWM, PDN, VRT, SIR
 

Movers and Shakers

Top of the table shorted stock Myer ((MYR)) saw its shorts drop 2.2ppt in the week to 17.9% from 20.1% but Myer still remains the most shorted stock in the market. Some, but not all of the grim reapers took profits following the company’s poor earnings result release.

The gap to second has now significantly closed, nonetheless, with Metcash ((MTS)) shorts having increased 2.8ppt to 16.3% from 13.5% in the week. Metcash has been voted most likely to be squeezed out in the battle between the local supermarket duopoly on the one hand and the foreign invaders (Aldi/Costco) on the other.

While Fortecue Metals ((FMG)) remains in the 10% plus club, junior peer Atlas Iron ((AGO)) has now slipped out as long standing short positions are cashed in on the relentless slide in iron ore prices. Atlas shorts fell 1.2ppt to 9.4%. UGL ((UGL)) has also departed the 10% club with a 1.9ppt drop to 9.8%.

Cardno ((CDD)) is another 10% club member to depart this week, falling 1.8ppt to 8.6% on a brief dip in share price. But the most spectacular move of the week was provided by Acrux ((ACR)), which dropped from 9.8% right out of our 5% plus table. Assuming this is accurate (and as the explanation below suggests, the data is not always 100% reliable) someone has just closed out a very big position in a hurry, without moving the stock price.

Big reductions were also seen for Pacific Brands ((PBG)), down to  7.2% from 9.3%, NextDC ((NXT)), down to 6.7% from 8.0%, and BC Iron ((BCI)), down to 6.2% from 8.0% (See: Atlas above).

On the other side of the ledger, Monadelphous ((MND)) has been on a long slow climb and finally joined the 10% plus club in the week, with a whopping 6.1ppt increase to 15.7% from 9.6%, if the data is accurate. Mona is a highly respected company in a very subdued industry impacted by falling commodity prices.

Ditto WorleyParsons ((WOR)), which has jumped from less than 5% up to 6.2% shorted.

And another sudden newcomer in the week was gold miner Northern Star Resources ((NST)), which saw its shorts jump to 7.1% from less than 5%. The gold price jumped in the week on the back of the sharp US dollar correction, which may have enticed a shorter.
 

To view ASIC's more comprehensive short tables, click here. [Please note, while daily and weekly ASIC data appear up to date, monthly data do not.]
 

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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