We follow over 13,100 domestic stocks with $723 billion of short interest in our Blacklight SaaS platform and Black App and $98.4 billion, 13.6%, of the short interest is in the Consumer Discretionary Sector. The Consumer Discretionary sector has been hard hit by self-isolation and quarantining as a result of the COVID-19 virus with the Spider Consumer Discretionary ETF (XLY) down over -24% for the year.
Over the last 30 days we saw $41.1 billion of new short selling in the domestic market with $6.25 billion, 15.2%, in the Cons Disc Sector. While overall short interest and 30 day short activity in the Cons Disc Sector looks to be running in sync with the overall market in actually, we saw heavier relative short selling in the first three weeks of March and short covering over the last week. Cons Disc Sector short selling was $7.7 billion over the first three weeks in March, 32% of overall domestic equity short selling. But over the last week, we saw -$1.5 billion of short covering in the Cons Disc Sector while the overall market was bearish and saw +$17.0 billion of total short selling. Shorts were decreasing their exposure to the Cons Disc Sector as the overall market was short selling on a broad basis.
The largest shorts in the Consumer Discretionary Sector are:
While the AMZN short selling is due to portfolio hedging activity, using AMZN along with the other FAANG and mega\large cap stocks as a proxy short to the overall market, most of the new Cons Disc short selling was in stocks which would be obviously negatively affected by the COVID-19 quarantining. Casino stocks (MGM & LVS), Hotel & Travel stocks (MAR, HLT, RCL, CCL, BKNG and LVS) and Restaurant stocks (SBUX & CMG) dominate the top twenty.
The largest increase in Shares Shorted over the last 30 days in the Cons Disc Sector are:
While some of the most covered stocks in the Cons Disc Sector are those which should see increased activity during the COVID-19 crisis such as EBAY, DPZ, PTON, DG, TGT, GRUB and YUMC there are a few surprises. We see short covering in both TSLA and NIO electric car companies even as oil\gas prices slide to dramatic lows as well as short activity in CZR diametrically opposite to its fellow casino competitors.
Over the last 7 days, short selling and covering activity in the Cons Disc Sector has not only been contradictory to broad market activity, but also not necessarily consistent with short selling\covering activity we saw in the first three quarters of the month.
The largest decrease in Shares Shorted over the last 30 days in the Cons Disc Sector are:
After seeing price weakness since mid-February we saw a price rebound in NKE during the last week of the month, short sellers were quick to increase their exposure as its strike price rose, getting in at even more attractive prices in anticipation of a further relapse in stock price during this lockdown which is without sporting events to advertise their products and spur new purchases. Both CCL and RCL cruise lines saw additional short selling over the last week as short sellers sold into the stocks’ short-term stock price rebound.
The largest increase in Shares Shorted over the last 7 days in the Cons Disc Sector are:
Surprisingly, HLT led the league tables in short covering over the last week as short sellers covered nearly half the short sales they put on during the first three weeks of the month. But looking closely at the Profit & Loss numbers, it makes perfect sense. Short sellers were up +$70.3 million, +11.22%, in mark-to-market profits in January & February and up +$273.1 million, +40.53% in the first three weeks of March. But during the last week in March they gave back -$87.0 million, -9.94%, of their profits. Short sellers were covering their exposure during the last week of March in order to realize some of their mark-to-market profits.
Going forward, it is important to see what the short side is doing in the Cons Disc Sector as both short sellers and long shareholders need to see which way the wind sock is blowing and whether the shorts are pressing the Bid or Offer side of the market of the names in the sector.
The largest decrease in Shares Shorted over the last 7 days in the Cons Disc Sector are:
Carmakers and car sellers (F, KMX & AN) along with cruise lines (CCL, RCL & NCLH) are seeing a continuation of the March’s early month short selling. We can expect price weakness in these stocks to be exacerbated by continued short side pressure.
Cons Disc stocks short selling in the first three weeks of March and continued short selling in the 4th week:
An about face in trading sentiment for stocks shorted early in the month and covered in the last week may be a function of realized profit harvesting or fear of a rebound from an oversold situation. This short covering\buying may buoy a more rapid rebound if stock prices strengthen.
Cons Disc stocks short selling in the first three weeks of March but short covering in the 4th week:
Shorts continue to exit their positions in stocks that should perform better during this pandemic. Short covering continued throughout March in TSLA as shorts try and realize some of the $2.59 billion, +27.34%, in mark-to-market profits they earned during the month. While EBAY and PTON stocks were profitable during the entire month, up +$219 million in total, they gave back virtually half of their profits during the last week, -$215 million. Shorts are managing their positions and following the old adage “cut your losses and let your profits run.”
Cons Disc stocks short covering in the first three weeks of March and continued short covering in the 4th week:
Short sellers have reversed course on a handful of stocks in the Cons Disc Sector where initial short covering has been replaced by short selling. Nine out of the top twenty stocks in this group were apparel, footwear or sports equipment based. Without professional sports, outdoor activities, influencers and the entertainment sector to drive advertisements and sales this sector may be in for a substantial decrease in revenues that may not be recouped in full if the lockdown extends for a significant amount of time.
Cons Disc stocks short covering in the first three weeks of March but new short selling in the 4th week:
Short selling activity can vary dramatically among the various sectors and change direction rapidly. Analyzing and incorporating short selling and short covering trends enhances both hedging efficiencies and Alpha (profit) generation. Using our analytical platforms allows investors and traders to gain insight into a side of the market which is usually invisible to most of the market and gain a market advantage over their competition.
Want deeper insight into the above analysis?
Contact: Ihor.Dusaniwsky@S3Partners.com
Managing Director Predictive Analytics, S3 Partners, LLC
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