The markets were up substantially in July with the narrower S&P 500 up +5.5%, broader Russell 3000 up +5.6% and tech based Nasdaq outperforming at +6.8%. As expected, short sellers did not perform well in this upward trending environment. Overall, equity\ADR short interest averaged $847 billion for the month of July and short sellers were down -$46.6 billion in net-of-financing mark-to-market losses for the month of July. This pulled a previously overall profitable year into the red, with shorts now down -$27.2 billion in mark-to-market losses for 2020.
We tracked 9,748 equities\ADRs with short interest in July; 40% were profitable with mark-to-market profits of +$14.85 billion; 50% were unprofitable with mark-to-market losses of -$61.43 billion and 10% had no P\L for the month.
The stocks with the largest net-of-financing mark-to-market profits for the month of July were:
The stocks with the largest net-of-financing mark-to-market losses for the month of July were:
Some of the more interesting stocks to look at are those which are not being used as portfolio or market hedges, arbitrage plays or are the usual vanilla crowded short trades. If we eliminate the mega and large cap shorted stocks we sift out most of the chaff and can examine some of the best and worst performing of the stock picker’s short plays.
Caesar’s Entertainment (CZR) is the most profitable short ex meg and large cap stocks. It is the biggest bet in the Covid-19 ravaged Casino and Gaming sector with short interest larger than the next three largest shorts Mirage (MGM), Las Vegas Sands (LVS) and Wynn Resorts (WYNN). This was the right short move in the sector, as short profits in CZR were 6.5 times the total short profits in MGM, LVS and WYNN combined. CZR was the best short bet in the Casino & Gaming sector.
One of the other sectors that were greatly affected by Covid-19 lockdown were the cruise lines. Carnival Corp (CCL) was the largest short, $1.86 billion short interest, of the three major cruise lines and the most profitable. Norwegian Cruise line (NLCH) also had short returns over 20% for the month but the short bet was less than half of CCL’s, $796 million. The sector was a favorable stock pickers sector with only one stock, Royal Caribbean (RCL), underperforming the other two choices. The $1.12 billion of short interest in RCL only made $40 million in profits, up only 3.6% for the month.
Airlines, much like casinos and cruise lines were severely affected by the Covid-19 lockdown and again, the biggest short had the best short returns. American (AAL) was the largest short in the sector, $1.75 billion, and most profitable +$287 million +16.4% monthly return. AAL short interest made up 40% of the total short interest of the top six most shorted stocks in the sector but earned 55% of the profits. AAL was the stock picker’s short pick in the sector but there were no losers on the short side in July, Delta (DAL) and Spirit (SAVE) both had +11% short returns for the month while United (UAL), Southwest (LUV) and JetBlue (LUV) came in at +8% short returns for the month.
Medical device developer and pharmaceutical manufacturer Esperion Therapeutic (ESPR) had been recouping its early year weakness with a steady rally from mid-March to early July but has given up half its gains over the last few weeks in July. Investors are fearing that its recently approved cholesterol drug has already been priced into the stock. Shorts have been building their positions for all of 2020, but we are starting to see a plateau of new short selling and some short covering over the last week as its stock price found downside resistance around the $39/share level.
iRobot (IRBT) shorts had been covering their exposure since the stock started to rally in late February. With iRobot’s dependence on Chinese production and its inability to diversify its production chain from China in the near future, investors may be wary of the re-implementation of government tariffs that would severely undermine gross sales and net profitability. The recent uptrend in IRBT’s stock price, as reflected by the -$11.5 million in mark-to-market losses over the last week, may squeeze out recent short sellers who would be looking to realize short -term unrealized profits.
Cloud based software provider Smartsheet Inc (SMAR) has nearly wiped out its year-to-date mark-to-market losses over the last month but additional short selling has stalled and actually dropped slightly over the last week as its stock price has stabilized. Look for short covering if its price strengthens and shorts looking to realize profits get squeezed out of their positions.
Beyond Meat Inc (BYND) short sellers have been bloodied for most of the year and were down over -$651 million in year-to-date mark-to-market losses prior to July. July’s +$106 million in mark-to-market profits kept these shorts in their trades and short selling actually increased in July. BYND will again be a short squeeze candidate if its stock price rallies once again which may happen sooner than later as BYND expands its footprint into Brazil, BJ’s Wholesale (BJ) and Walmart’s (WMT) Sans Club outlet.
Fitness club operator Planet Fitness Inc (PLNT) has been hard hit by the Covid-19 lock down and short sellers have been very active in the stock since the end of February. Shares shorted more than doubled since the end of February with an increase of 5.5 million shares, worth $295 million, as PLNT’s stock price fell -25%. July saw a continuation of this short selling with 918 thousand shares shorted, worth $49 million, as its stock price fell -13%. PLNT’s stock price continues to trend downward, and we should see continued short selling and short-side profit making in the name until the lock down is either lifted or fitness operators make usage safe and palatable to its membership.
After an initial negative price move between February and March, online personal shopping platform Stitch Fix’s (SFIX) stock price has been recovering as most other stay-at-home stocks. Shorts were down -$113 prior to July but have earned back +$87 million of those losses in July. Shorts are now down only -$26 million in year-to-date mark-to-market prices, but after touch a hot stove once, shorts are actively covering their exposure. Shorts have covered 3.1 million shares in July, worth $72 million, even as SFIX’s stock price fell -7%. Continued short covering should add additional upward buying pressure on SFIX’s stock price and if short continue to cover we will see a continuation of the stock price rally we saw start in June.
The “biggest loser’ on the short side for the month of July was Novavax Inc (NVAX) as the stock is up over 3500% for the year as a Covid-19 pharma play. Short sellers have been shorting into this rally as they were looking for a price reversal when long sellers sell to realize profits, pharma competitors outperform NVAX’s research or NVAX own research proves less effective. Unfortunately for the short side, none of these scenarios panned out and NVAX’s stock price continued to soar. From January to July NVAX shares shorted increased by 3.01 million shares, worth $438 million, in 2020 as NVAX’s stock price rose +3552%. In July we actually saw the start of some short covering with 699 thousand shares covered, worth $102 million. Shorts are down over $1 billion in year-to-date mark-to-market losses and we should expect more short covering I the near future as more shorts get squeezed out of their positions due to excessive mark-to-market losses.
Sunrun Inc (SRUN) shorts were down -$313 million in July as a result of their acquisition of Vivant Solar for $3.2 billion in an all-stock transaction. We saw 2.1 million shares of RUN covered in July, worth, $76 million, as its stock price rose +67%.
The Boston Beer Company’s (SAM) stock price soared by 116% from January to July as the Covid-19 lock down spurred more at home beer and cocktail consumption. In particular, SAM’s hard seltzer product line was a drive to 2nd quarter earnings doubling. Shorts have been covering all year long with 312 thousand shares covered, worth $254 million, and 90 thousand shares covered in July, worth $74 million as its stock price rose +49%. SAM shorts are down $505 million in year-to-date mark-to-market losses, and with $293 of those losses occurring in July we should see more short covering helping to drive up SAM’s stock price in the near future.
Shorts in online apparel platform Farfetch Ltd (FTCH) are being squeezed as short selling in the first half of the year is being reversed. For the year, shares shorted are up 5.03 million shares, worth $122 million, even though FTCH’s stock price rose +134%. Over the past month, we saw shares shorted halved with 4.96 million shares covered, worth $120 million, as its stock price rose +39%. Short sellers are down -$565 million in year-to-date mark-to-market losses for the year, -$267 million of those losses incurred in July and -$144 million over the last week in July. Expect the squeeze to continue and FTCH’s stock price to rise on buying from both the long and short side as luxury high-end consumers get more comfortable making their purchases online.
Virgin Galactic (SPCE) shorts have been building their positions throughout 2020 with 27.3 million shares, worth $627 million, shorted in 2020 and 1.04 million shares, worth $24 million, in July. Shorts are down $372 million in mark-to-market year-to-date losses but recent price weakness over the last week of July and early August has earned back nearly $100 million of mark-to-market profits. The upswing from the hiring of ex-Disney executive Michael Colglazler as its new CEO has worn off and the reality of no revenues being booked till 2021 and a 20.5 million share offering diluting shareholder’s equity has put SPCE’s stock price in a tailspin. Expect short selling to continue as long shareholder buying, especially on the retail side, throttles down.
Perennial short favorite Overstock.com (OSTK) has burned the shorts in this Covid-19 lockdown era with shorts down -$334 million in year-to-date mark-to-market losses. Losses have been accelerating recently with shorts down -$235 million in mark-to-market losses in July when the stock rallied +118%. Shorts were covering for most of the year, with 1.79 million shares, worth $109 million, covered but we have recently seen the short selling into the recent rally with 837 thousand shares, worth $51 million, shorted in July. It seems that short sellers are not buying that this recent rally will hold and are looking for a pullback.
Clinical Lab and diagnostic test operator Opko Health (OPK) is up almost +300% for the year as Covid-19 increased sales and revenues. Its recent CDC contract boosted OPK’s stock price even higher. There has been active short selling into this rally as shorts see the stock as overbought with 56.7 million shares, worth $328 million, of short selling in 2020 and 8.44 million shares, worth $49 million, in July alone. Shorts are down -$445 million in year-to-date mark-to-market losses but they are up +$21 million during the stock’s recent mini-downturn which may keep shorts in their trade a bit longer. A continuation of late July’s rally may squeeze out those shorts with less conviction and large red numbers on their P\L reports, as Covid-19 testing continues to increase it may be a safe bet that short sellers may be quick to pull the buy-to-cover trigger.
We may be seeing the start of a short squeeze in automobile retailer Lithia Motors (LAD) after it beat 2nd quarter EPS estimates and raised its dividend. Shorts were active in 2020 despite the growth of used car sales country-wide. LAD shares shorted increased by 412 thousand, worth $99 million, in 2020 but we saw 24 thousand shares, worth $6 million, covered in July. Shorts are down -$264 million in year-to-date mark-to-market losses for the year, with most of that loss, -$200 million, incurred in July. As LAD continues to hit new highs, expect some short sellers to cut their ride short.
SolarEdge Technologies (SEDG) is a popular hedge fund long but we have seen some recent short selling activity in the stock. Shares shorted have increased by +302 thousand shares, worth %53 million, in July even though SEDG’s stock price increased by +29% for the month. Shorts are active in a stock which is climbing, they are down -$488 million in year-to-date mark-to-market losses with -$200 of those losses incurred in July. This might be a short-lived short play as losses mount, expect short covering in the near term as shorts get squeezed out due to excessive mark-to-market losses.
Woman’s apparel and beauty products purveyor L Brands Inc (LB) were active and profitable for most of the year but after announcing $400 million of cost reductions short sellers dipped into the red for the year. Shares shorted increased by +6.65 million shares, worth $172 million, in 2020 but after the news we have seen the start of a short exodus with 307 thousand shares, worth 8 million, covered in July. With LB’s recent rally shorts are now down -$141 million in year-to-date mark-to-market losses after dropping -$198 million in July. Look for more short covering if LB’s recent spike from $19/share to over $25/share has legs. With $541 million of short interest in the stock, a rush or short covering may lift LB’s stock price even higher.
Looking at short selling trends over time provides insight into overall market sentiment as well as the strength of bearish conviction in individual equities. Our Blacklight SaaS platform and Black APP provides an up to date view of short selling and short covering on an equity, sector, index, or country-wide basis allowing investors\traders to better manage their existing long and short positions.
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