Lululemon Athletica Inc (LULU) shares short selling is increasing along with its stock price. Shares shorted has increased by 969k, +17%, in 2019 even as LULU’s stock price is up 17% on the year. The trend continues as we are seeing continued short selling over the last week even as LULU breaks through the $140/level for the first time since November 2018. Shares shorted increased by 395k, +6.7%, as LULU’s stock price rose by 4.6%.
The increased short selling is not due to shorts piling into a profitable trade, on the contrary shorts are down $117.3 million in mark-to-market losses in 2019 (-15.66%), including another -$6 million this morning. This follows several unprofitable years of short selling including 2018 when they were down $162 million in mark-to-market losses, or -29.73%; 2017 with $58 million in losses, or -11.61%; and 2016 when they were down $170 million, or 14.05%.
Continued short selling has not driven down Lululemon’s stock price and if short selling subsides in the near future expect the continued long buying pressure to move LULU’s stock price up higher and faster. Short sellers are looking for an overbought fallback in LULU’s stock price, but we are not seeing buying demand weakening. It looks like the longs are running a marathon while the shorts were hoping for a sprint to tire them out.
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Managing Director Predictive Analytics, S3 Partners, LLC
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