Overall domestic equity and ADR short interest has declined significantly, along with the markets, since February 19th. Total short interest has declined from $958.8 billion to $656.1 billion in just a month. Short interest has decreased by -32% as the S&P 500 and Nasdaq have declined by -29%.
But the over $300 billion decrease in Short Interest is deceiving, along with the mark-to-market decrease in the notional value of outstanding shares shorted there has been an actual increase of short selling into this declining market. Since Feb 19th domestic short selling has seen a net increase of $40.98 billion.
To break down the change in short interest:
- February 19th Short Interest $958,765,034,159
- Mark-to-Market Decrease -$343,667,889,825
- Shares Shorted Increase +$40,983,942,651
- March 19th Short Interest $656,081,086,985
While there was a +$41 billion increase in shares shorted there were specific sectors that saw short covering instead of additional short selling. Overall, there were 4 industry sectors with increased shares shorted to 1 with short covering.
Industries with largest increase of short selling:
Stocks with largest increase of short selling:
While some of the increased short selling was due for portfolio hedging purposes (V, ABBV, FB and AMZN) we are seeing increased short selling in the financial sector (MS,SCHW, BAC and TROW) that reflects the decrease in the overall yield curve, the chance of cash liquidity issues and overall credit volatility. McKesson (MCK) increase in short sales is directly associated with arbitrage trading on its CHNG spinoff. Increased short selling in XOM and OXY reflect the tremendous recent decline in oil process.
Industries with largest increase of short covering:
Stocks with largest increase of short covering:
On the short covering side, most of the stocks on the list would see increase revenues due to periods of domestic quarantine. One surprising security on the list is Apple (AAPL) which is expected to have manufacturing issues with a large portion of its production in Asia. Short sellers may be taking profits with the stock down nearly 25% over the past month and the chances of a V shaped whipsaw very strong if product deliveries rebound as the COVID-19 outbreak in China seems to be stabilizing.
The Software & Services Sector and the Media & Entertainment Sector continue to be the most shorted sectors over the last week with over $4.4 billion on new short sales. Six of the top ten most shorted stocks over the last week are in these sectors: MSFT (+$1.11 billion). AAPL (+$842 million), FB (+$676 million), GOOGL (+$360 million), DIS (+$353 million and AMZN (+$305 million).
As the markets continue to swing wildly on a seemingly daily basis, sector shorting activity will undoubtably follow suit and shorting\covering will swing significantly as well. We will continue to monitor short selling activity on an ongoing basis to give both long shareholders and short sellers a view into this opaque market in order to expand their overall vision into daily trading activity and market sentiment.
Want deeper insight into the above analysis?
Contact: Ihor.Dusaniwsky@S3Partners.com
Managing Director Predictive Analytics, S3 Partners, LLC
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