The Short Report

Array
(
    [0] => Array
        (
            [0] => ((ISD))
            [1] => ((SYR))
            [2] => ((WOR))
            [3] => ((WOW))
            [4] => ((MTS))
            [5] => ((MYR))
            [6] => ((MND))
            [7] => ((IFL))
        )

    [1] => Array
        (
            [0] => ISD
            [1] => SYR
            [2] => WOR
            [3] => WOW
            [4] => MTS
            [5] => MYR
            [6] => MND
            [7] => IFL
        )

)

This story features SYRAH RESOURCES LIMITED, and other companies.
For more info SHARE ANALYSIS: SYR
The company is included in 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 July 28, 2016

Last week saw the ASX200 continue to creep higher, sometimes incongruously, ahead of a peak at month’s end. While RBA speculation was clearly playing a part, a quick glance at the table below provides further explanation.

The number of stocks carrying shorts in excess of 5% has been summarily slashed.

Last week I noted what I believe to be a first in the history of this Report – all bracket reductions and no increases. This Report shows two bracket increases – iSentia Group ((ISD)) and Syrah Resources ((SYR)) – and a barrage of bracket reductions. That barrage has reduced the number of stocks with shorts in excess of 5% to 29, which is the lowest count in the history of this Report.

I also noted last week that squaring up short positions is typical ahead of a results season. Well, that certainty seems to be the case.

We also have a new leader. At a stable 13.3%, WorleyParsons ((WOR)) is now the most shorted stock in the market following respective 3.9 percentage points and 1.4ppt short reductions for long time incumbents Myer and Metcash. Meanwhile, Monadelphous shorts have risen 1.7ppt.

The other big mover down the table last week was IOOF Holdings, falling 2.5ppt.

We note also that Woolworths ((WOW)) shorts were steady at 7.4% but this is prior to its snap rally this week on the restructuring announcement.

Weekly short positions as a percentage of market cap:

10%+

WOR   13.3
MYR   12.8
MTS    12.0
MND   11.9
FLT     10.2

No changes

9.0-9.9%

CVO, WSA, BAL
 
No changes                

8.0-8.9%

AWC, IGO

Out: IFL, MYO, ORI, CAB 

7.0-7.9%

CTD, MYO, ORI, CAB, ISD, WOW, OSH, JBH, IVC

In: MYO, ORI, CAB, ISD                 Out: BEN, AWE

6.0-6.9%

SGH, AWE, TFC, BEN, IFL

In: IFL, AWE, BEN               Out: ISD, DOW, NWS, NEC, PRY, AHY

5.0-5.9%

SYR, QUB, MSB, SEK, AAC

In: SYR                       Out: ANN, SGM, GUD, SPO, RFG, VOC

Movers and Shakers

Last week the ACCC said it would not oppose Metcash’s ((MTS)) intention to acquire Home Timber & Hardware from Woolworths. This provided the Metcash share price with a boost, but then in the lead-up to the RBA meeting this week, both consumer sectors – staples and discretionary – enjoyed buying support.

Short-covering was also evident as Metcash shorts fell to 12.0% from 13.4%, while Myer ((MYR)) shorts fell all the way to 12.8% from 16.7% on no new news. Myer will report this month while Metcash reports on a later cycle.

Resource sector services provider Monadelphous ((MND)) last week reached an agreement with the Wiggins Island Coal Export Terminal to resolve all contract claims, although a strong run-up for the share price of late is likely reflective of the sharp rally in the coal price. But with Mona’s profit result approaching, the shorters aren’t bailing in this case. Mona shorts have risen to 11.9% from 10.2%.

Fund manager IOOF Holdings’ ((IFL)) June quarter funds flow data provided no real incentive to buy the stock, but IOOF is very much correlated to the market in general hence last week saw its share price rallying in concert with the index. This, it seems, was enough to scare the shorters down to 6.4% from 8.9%.
 

ASX20 Short Positions (%)

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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