Markets have been in rally mode during the first week of October with the Dow up +1.88%, the S&P 500 up +2.02%, the Nasdaq up +1.76% and the broader smaller cap Russell 2000 up +7.65%. Short sellers have been active in October with over $2.1 billion of new short selling even though they have taken a -$44 billion hit in net-of-financing mark-to-market losses. Several industry groups saw significant short selling or short covering activity in early October.
Industry groups with the largest increase in short selling were the Media & Entertainment (+$1.37 billion); Pharma, Biotech & Life Sciences (+$642 million) and Automobiles & Components (+$522 million).
Netflix (NFLX), Match Group (MTCH) and Alphabet (GOOG\GOOGL) had the biggest increase of short selling in early October in the Media & Entertainment industry group. There was short selling across the board in the sector, with only 29% of the 421 stocks having net short covering and none over -$100 million. Shorts are piling into the industry group as tech stocks have had a recent pullback from their post-March rally.
Pharma, Biotech & Life Science is another sector which has overperformed for most of the year and short sellers are now targeting some of the sizzling stocks in the sector. Short sellers are almost as broadly bearish as the Media & Entertainment shorts with only 38% of the 1,263 stocks in the sector having net short covering over the early part of October. The two largest new short plays were Amgen (AMGN) and Moderna (MRNA). AMGN is once again testing year-to-date highs and it looks like shorts are expecting them to hit the ceiling and bounce back down just like the last few times the stock hit the $255 level. MRNA’s stock price more than tripled since March and shorts may be counting on strong Covid-19 vaccine competition from Pharma behemoths to temper MRNA’s year-long rise.
Automobiles and Components round out our top three industry groups with increased short selling and as expected Tesla (TSLA) leads the sector, and the U.S. market, in increased short selling. While we have seen over 70 million shares of short covering in TSLA in 2020 there has been some recent short selling in the stock after it rebounded back to the $450 level. General Motors (GM) short selling increased after the announcement of its Nikola (NKLA) deal while NIO Inc (NIO) shorts continued their year-long short covering as its stock price keeps its post-May rally in overdrive.
Below are some of the individual stocks that made up industry group with the largest short selling moves:
Industry groups with the largest increase in short covering were Semiconductor & Semiconductor Equipment (-$982 million); Utilities (-$404 million) and Retailing (+$206 million).
Shorts have been cutting their short exposure to Intel (INTC), Nvidia (NVDA) and Analog Devices (ADI) while increasing their exposure to Microchip Tech (MCHP), Texas Instruments (TXN) and Advanced Micro Devices (AMD).
Coming off a recent low of $57.13 on September 23rd the Utilities Select Sector Spider (XLU) has hit its year-to-date high this week and is now up 1% for the year. Shorts are looking at this full-year underperforming industry group and seeing rotational activity which should bid up stock prices. California based PG & E Corp (PCG) is still seeing short selling as continued wildfires threaten their infrastructure and increase potential legal liabilities. East coast based electric utility and natural gas provider Dominion Energy (D) has seen its short exposure drop by more than a quarter with $550 million of short covering in the early part of October.
Short sellers in the Retailing industry group are shorting the more pure-play online\e-commerce platforms in the U.S. and China\Hong Kong like JD.com (JD), Amazon.com (AMZN), eBay (EBAY) and Pinduoduo (PDD). While shorts are active in these U.S. and Chinese\Hong Kong e-commerce stocks they are reducing their exposure to Latin American e-commerce giant MercadoLibra (MELI) and broader Chinese\Hong Kong internet commerce and content provider Alibaba (BABA). Carvana (CVNA) has also seen short sellers running for cover with just over $100 million of short covering in October. Shorts are down -$2.7 billion in year-to-date mark-to-market losses in CVNA.
Below are the some of the individual stocks that made up industry group with the largest short covering moves:
Looking at the ETF side of the market we see a rotation in the “hedging ETFs” with short selling in the narrower, larger cap Spider S&P 500 ETF (SPY) and broader, smaller cap iShares Russell 2000 ETF (IWM) while there was short covering in the more tech based Invesco Nasdaq ETF (QQQ). While we saw short covering in the individual Utilities stocks there was short selling in the Utilities Select Sector Spider (XLU). Fixed income ETFs have been a very popular trade on the short side this year with the iShares iBoxx $ High Yield Corporate Bond ETF (HYG), iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD) and iShares 20 Year Treasury Bond ETF (TLT) in the top ten most shorted ETFs in the domestic market. In October we have seen continues short selling in the HYG and iShares 7-10 Year treasury Bond ETF (IEF).
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.
Click for 10 Day Complimentary Access to Bloomberg/S3 Black App Pro
The information herein (some of which has been obtained from third party sources without verification) is believed by S3 Partners, LLC (“S3 Partners”) to be reliable and accurate. Neither S3 Partners nor any of its affiliates makes any representation as to the accuracy or completeness of the information herein or accepts liability arising from its use. Prior to making any decisions based on the information herein, you should determine, without reliance upon S3 Partners, the economic risks, and merits, as well as the legal, tax, accounting, and investment consequences, of such decisions.
