The Short Report – 30 Apr 2020

This story features MYER HOLDINGS LIMITED, and other companies. For more info SHARE ANALYSIS: MYR

See Guide further below (for readers with full access).

Summary:

Week ending April 23, 2020

Last week the rebound rally for the ASX200 hit a speed bump as the WTI oil price fell into the negative, but all has since been forgiven.

There are two main factors impacting on short positions at present. One is the seemingly relentless rally back from depths, squeezing the shorts and forcing short-covering, and the other is a spike in the number of companies raising new capital, which opens up the opportunity for shorters to lock in profits by taking up discounted new shares.

In the former case, shorters appear to still have their favourites, as suggested by the rebound rally being used to increase rather than cover positions.

In that cohort we see the likes of walking corpse Myer ((MYR)), which last week jumped to 14.1% shorted from 11.4%, just as lithium miner Galaxy Resources ((GXY)) saw its shorts fall to 14.6 from 16.2%. It would not be the first time in history Myer was the most shorted stock on the market, if that is to be the case.

We also see ongoing upward bracket creep for Metcash ((MTS)) and Super Retail ((SUL)), and EFTPOS company Zip Co ((Z1P)), even as the reopening of retail can now been seen down the tunnel. Also to continue their creep are money managers Perpetual ((PPT)) and Challenger ((CGF)), even as the stock market rallies and while the RBA signals zero rates for the foreseeable future.

In the latter case, we see InvoCare ((IVC)) slipping off the 5%-plus shorted table from 6.9% and Southern Cross Media ((SXL)) from 6.0%, while Webjet ((WEB)) is nearly gone on 5.1%, down from 6.2%. Flight Centre ((FLT)) has dropped off from 9.6%. All four have raised capital.

Last week again saw a net reduction of the table, as was the case the week before, this time by five stocks, being Southern Cross Media, InvoCare, Kogan ((KGN)), Domino's Pizza ((DMP)), Afterpay ((APT)) and Dacian Gold ((DCN)); only Blackmores ((BKL)) provided the offset.

We note also satellite company Speedcast International ((SDA)) has filed for bankruptcy. Shorts as at last week stood at 12.8% and will likely stay that way for the six months the process is expected to take, thus as of next week I'll remove it from the table, having been through the same experience a while back with Dick Smith.

Weekly short positions as a percentage of market cap:

10%+
GXY 14.6
MYR 14.1
SDA 12.8
ORE 11.9
JBH 10.8
ING 10.1

No changes

9.0-9.9

CUV, PLS, Z1P, SUL

In: Z1P, SUL Out: FLT, NCZ

8.0-8.9%

NCZ, BOQ, MTS, PGH, PPT

In: NCZ, MTS, PPT Out: Z1P, SUL

7.0-7.9%

CTD, SEK, BEN, NEA

In: NEA Out: MTS, PPT, HVN

6.0-6.9%

HVN, CGF, MYX, SGM, SYR

In: CGF Out: NEA, IVC, DCN, WEB, RSG, SXL

5.0-5.9%

GWA, CLH, RSG, AMP, BUB, PNV, IFL, LYC, BKL, CLQ, WEB

In: RSG, WEB, BKL

Out: KGN, DMP, GEM, APT

Movers & Shakers

Movers & Shakers will return when things settle down.

ASX20Short Positions (%)

To see the full Short Report, please go to this link

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.

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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