The Short Report

Array
(
    [0] => Array
        (
            [0] => ((UGL))
            [1] => ((MRM))
            [2] => ((ALQ))
            [3] => ((JBH))
            [4] => ((HVN))
            [5] => ((DSH))
        )

    [1] => Array
        (
            [0] => UGL
            [1] => MRM
            [2] => ALQ
            [3] => JBH
            [4] => HVN
            [5] => DSH
        )

)

This story features ALS LIMITED, and other companies.
For more info SHARE ANALYSIS: ALQ
The company is included in 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 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 May 29, 2015.

Last week the ASX200 somewhat inexplicably bounced off 5600. The bounce itself is explicable because 5575 offered technical support, but the rally all the way to above the technically significant level of 5750 made little sense in the scheme of things. And it won't be lost on anyone that (as I write) we're now back at 5550, via the elevator.

Given the June plunge it will be interesting to see what next week's ASX short data have in store for us, given they're published on a delay. Otherwise, this week's table shows a fair bit of red and green, although mostly representing minimal bracket creep. There are a few exceptions, nonetheless.

UGL has been as equally popular with the buyers of late as with the shorters, who have had the stock in the 10% plus club for some time. UGL remains in the club this week, but its shorts have fallen 1.7 percentage points. MMA Offshore has seen a similar drop but it, too, remains in the 10% bracket. The big mover of the week, if the data are accurate, is ALS. The company reported a soggy full-year report last week but saw its shorts plunge 3.7ppt.

Dick Smith has leapt up into the 9% bracket with a bit of a kick last week, having previously been quietly on the move up. Perhaps some expect the honeymoon of the federal budget to fade for the electronics retailers.
 

Weekly short positions as a percentage of market cap:

10%+

MYR   20.6
MTS    19.3
MND   14.3
MIN    14.0
ORI     13.7
FLT     11.8
WOR   11.8
PRY    10.6
UGL    10.4
MRM  10.3
AGO   10.3
FMG   10.0

In: FMG          Out: CDD

9.0-9.9%

CDD, DSH
 
In: CDD, DSH                        Out: FMG, ALQ                    

8.0-8.9%

ACR, SXY, PBG, MGX

Out: CAB

7.0-7.9%

WOW, CAB, MSB, KAR, ARI, SGM, SWM, NWH, ILU, NXT, GEM

In: CAB, MSB, SWM, GEM                         Out: DSH, SGN, SUL

6.0-6.9%

SUL, SGN, KCN, JHC, WHC, GXL, ASL, JBH, SGH

In: SGN, SUL, SGH              Out: MSB, SWM, GEM, AWE

5.0-5.9%

GWA, BCI, ALQ, OFX, DLS, SEK, SPO, BPT, AWE, TFC, NWS, KMD, VRT

In: ALQ, AWE, NWS                        Out: SGH, SIR
 

Movers and Shakers

UGL ((UGL)) is one of the few listed engineering & contracting companies that has seen its share price steadily rise of late, from a trough in April, presumably much to the annoyance of the shorters, who up to last week had UGL 12.1% shorted. Some capitulation is evident, it would seem, as UGL shorts have fallen 1.7ppt to 10.4%.

Interestingly, it was this week UGL announced a profit warning of sorts, hanging out all its dirty laundry, taking provisions and rebasing earnings. Such a clean-out is often welcomed by investors, and news that UGL’s important Ichthys LNG contract had stabilised was a positive. UGL shares shot up on the news, so next week’s Report might reveal further short-covering.

Another LNG service provider is MMA Offshore ((MRM)), and it saw its shorts fall 1.8ppt last week to 10.2% from 12.0%. MMA’s share price ran up during the week despite no new news, probably due to stronger oil prices.

Mining services and life sciences company ALS ((ALQ)) excited no one with its full-year profit release last week, and its share price did little, but there were suggestions from some analysts the stock’s earnings may have just about reached a trough. This may explain why ALS shorts plunged by 3.7ppt last week to 5.5% from 9.2%.

However I’ve been caught out before with big moves like this is this same sector, only to see short positions completely revert the following week. This suggests ASX data error, so we might just wait to confirm this plunge in shorts when next week’s numbers are published.

Electronics retailers were a big potential winner from small business incentives included last month’s federal budget, and as such have since enjoyed a bit of a moment in the sun. JB Hi-Fi ((JBH)) is nevertheless still hanging round on our 5% plus shorted table, but once upon a time JBH was a seemingly perennial 10% plus club favourite. Harvey Norman ((HVN)) is not a shorter’s favourite given the company’s extensive property holdings, which just leaves Dick.

Dick Smith Holdings ((DSH)) has been residing on the 5% plus table for a while but has been sneaking up recently, and last week its shorts jumped 1.1ppt to 9.0% from 7.9%. Shorters are possibly expecting the short term budget excitement to fade.

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.

Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)" – Warning this story contains unashamedly positive feedback on the service provided.

Click to view our Glossary of Financial Terms