The Short Report – 07 Dec 2023

This story features PILBARA MINERALS LIMITED, and other companies. For more info SHARE ANALYSIS: PLS

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

Summary:

By Greg Peel

Week Ending November 30, 2023.

Last week saw some heat come out of the ASX200 rally early in the week before order was restored towards the end of the week.

In contrast to the prior two weeks, last week saw what appears to be an awful lot of short position reduction towards the bottom of the table. No less than six stocks fell off the table altogether, and none came in.

Such an abundance always leads me to suspect there may have been a blip in ASIC data, as it has happened often enough before, suggesting everything will go back the other way this week. But there are some explainable moves, so we’ll have to take it for now.

First we note Pilbara Minerals ((PLS)) has jumped up from 18.9% shorted to 20.6%. The last time we saw a stock over 20% shorted it was also a lithium miner – the pre-merged Galaxy Resources. That was a while back.

Yesterday’s extraordinary rally for the ASX200 featured some very sharp (+10%) jumps among lithium miners and short-covering would go a long way to explaining. The likes of Core Lithium ((CXO)) and Sayona Mining ((SYA)) joined in.

Syrah Resources ((SYR)) last week saw a drop to 14.7% shorted from 17.0% for reasons unapparent, other than the stock price has been trending lower.

Rare earth miner Arafura Resources ((ARU)) shot up 17% last week after announcing the completion of early works construction at its Nolans project, but quickly came back down again. Arafura shorts fell to 5.0% from 7.1% last week.

Appen ((APX)) has fallen to 6.4% shorted from 9.6% after it announced an equity raising late last week.

Select Harvests ((SHV)) issued a profit warning last week due to wet weather, bee mites and low almond prices, and fell -24% over the week. That would explain a reduction in shorts to 5.7% from 7.3%.

Imugene ((IMU)) did almost triple in price (we’re talking small cents per share) but that was the week before, yet Imugene shorts have fallen to 5.5% from 7.0%.

Uranium hopeful Deep Yellow ((DYL)) went the other way, appearing at 6.5% shorted from below 5%. The miner upgraded the indicated resource at its Tumas 3 project last week.

Less explicable is a fall from 7.4% to below 5% for Lendlease ((LLC)).

Lots of movement, but we’ll have to wait till next week to confirm it’s all real.

Weekly short positions as a percentage of market cap:

10%+

PLS     20.6
SYR    14.7
CXO   11.5
GMD   10.6

No changes

9.0-9.9%

SYA, IEL

Out: APX, FLT                      

8.0-8.9%

FLT, BOQ

In: FLT

7.0-7.9%

WBT

Out: OBL, LLC, SHV, LTR, ARU, IMU                 

6.0-6.9%

HVN, ACL, DYL, APX, LTR, CHN

In: APX, LTR, DYL, CHN                Out: MSB, PEN

5.0-5.9%

SHV, LIC, JBH, LYC, IMU, SLX, MSB, PEN, NEC, STX, NVX, ARU

In: SHV, IMU, ARU, MSB, PEN      Out: AGY, IFL, INR, ELD, TPW, BRN

Movers & Shakers

As noted above.

ASX20 Short 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.

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.

FNArena is proud about its track record and past achievements: Ten Years On

Click to view our Glossary of Financial Terms