The Short Report

Array
(
    [0] => Array
        (
            [0] => ((MTS))
            [1] => ((SGH))
            [2] => ((DSH))
            [3] => ((WSA))
            [4] => ((WOR))
            [5] => ((ALQ))
            [6] => ((CDD))
        )

    [1] => Array
        (
            [0] => MTS
            [1] => SGH
            [2] => DSH
            [3] => WSA
            [4] => WOR
            [5] => ALQ
            [6] => CDD
        )

)

This story features METCASH LIMITED, and other companies.
For more info SHARE ANALYSIS: MTS
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 December 3, 2015.

As far as shorting activity is concerned, last week pretty much all came down to one day. Following a weak end to November, the market decided to jump in on the first of December and buy beaten-down names. These included many of the most shorted stocks in the market, and thus short-covering scrambles ensued.

The table below is almost entirely green as a result.

Some of biggest short-covering rallies were posted by some of hardest hit stocks in recent times. Big short reductions were posted by the likes of Metcash, Slater & Gordon and Dick Smith. Commodity-related stocks did not miss out either, with Western Areas and WorleyParsons both seeing significant reductions.

Whether or not investors on the day decided it was time to prompt a Santa Rally, it’s been to avail so far. Having jumped up to 5250, the ASX200 is now having yet another look at 5000.

Weekly short positions as a percentage of market cap:

10%+

MTS    22.2
MYR   19.4
MND   16.9
JBH     16.2
MIN    14.1
ORI     13.6
FLT     13.6
CAB    12.6
SGH    12.1
WSA   12.1
AWC   11.6
AWE   10.8
GXL    10.8
GEM   10.3
SUL    10.0

Out: DSH, WOR, SEK         

9.0-9.9%

SEK, PRY, WOW, DSH, VOC
 
In: SEK, DSH             Out: STO

8.0-8.9%

IVC, MRM, WHC, ARI, WOR

In: WOR                     Out: ALQ, NEC

7.0-7.9%

ALQ, FMG, SPO, STO, UGL

In: ALQ, STO

6.0-6.9%

KAR, NEC, NWH, MGX, RFG, TFC, NVT, SVW

In: NEC                      Out: CDD, BKN

5.0-5.9%

PDN, SYR, IFL, SGM, GWA, ILU, AAC, SXY, NWS, BOQ, SWM, CDD

In: CDD, ILU, BOQ              Out: MSB, CAR, DLS

Movers and Shakers

The most shorted company on the market, Metcash ((MTS)), last week managed to surprise by posting a full-year result that beat broker forecasts. While the result triggered a short-covering scramble of sorts, evident in a sharp rally in the share price, the 2.2 percentage point reduction in shorts only took Metcash down to 22.2% shorted from 24.4%. Pole position was retained ahead of Myer on 19.6%.

Having seen its share price tumble in waves to $1 last week from $6 in June, battered and bleeding ambulance chaser Slater & Gordon ((SGH)) also experienced a short-covering scramble last week. There was no new news to trigger the rally, simply a big up-day for the index and apparently a decision by some shorters that it was time to take profits. S&G shorts fell by 3.7ppt to 12.1% from 14.8%.

Electronics retailer Dick Smith ((DSH)) has suffered a similar fate of late, seeing its share price carted on profit warnings and inventory write-downs. And Dick similarly saw a short-covering rally on that same big up-day for the index having fallen substantially prior. Dick shorts are down 2.6ppt to 9.1% from 11.5%.

Indeed, December the first proved to be a session in which buyers moved in to beaten-down stocks in general, and many of the heavily shorted names that have had particularly bad years saw some covering. Weak commodity prices have of course been a theme for 2015, thus nickel producer Western Areas ((WSA)) and energy sector servicer WorleyParsons ((WOR)) have had a rough time. Both saw short-covering on the day, reducing Western shorts by 1.3ppt to 10.8% from 12.1% and Worley shorts by 2.3ppt to 8.0% from 10.3%.

The week before last saw jumps in shorts for mining service providers ALS ((ALQ)) and Cardno ((CDD)) after both announced dilutive capital raisings, opening the possibility of an arbitrage against new stock. Last week saw some reversal as ALS shorts fell 1.1ppt to 7.8% and Cardno shorts fell 1.6ppt to 5.0%.

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