From February 24th to March 3rd short sellers were extremely active as the S&P 500 fell -10.02% and the Nasdaq fell -9.32%. We saw +$14.58 billion of additional broad short selling in the market with 62% of the actively shorted stocks (those with over $50 million of short interest) seeing additional short selling.
Total domestic equity short interest over the week+ time period was $848.3 billion, and shorts were up +$51.30 billion in mark-to-market profits, +6.05%. When looking at the most active shorted stocks, those with over $50 million of short interest, 90% of the stocks had positive mark-to-market P\L with an average return of +7.62%.
A very familiar name for short sellers was the most profitable short since February 24th, Tesla (TSLA) was up +$1.10 billion, +8.46%, in mark-to-market profits. Even as Tesla shorts recouped 12% of their -$9.00 billion in year-to-date mark-to-market losses they continued to cover chunks of their short exposure. Tesla shares shorted have decreased by -1.11 million shares since the 24th, $827 million of buying to cover, even as its stock price fell by -17.26%.
On a percentage basis, the big winner on the short side was liquified nat-gas producer Tellurian Inc (TELL) which generated a 111.44% return for short sellers in just over a week. With Chinese already weak LNG demand depressed even further due to the coronavirus epidemic and chronic oversupply in the LNG market, Tellurian’s stock price fell to YTD low of $1.57/share.
As expected, there were several travel related stocks in the top 20. Hertz (HTZ), Sabre Corp (SABR), Eldorado Resorts (ERI), Eventbrite Inc (EB) and Gogo Inc (GOGO) were all down significantly on potential coronavirus related revenue effects.
While short side winners clearly outpaced losers, with over five profitable shorts to every one losing position in the more widely traded short equities, there were a few sectors which proved unprofitable for the shorts. The most obvious sectors were the biotech, pharmaceutical and healthcare sectors with Moderna Inc (MRNA), Regeneron Pharma (REGN), Teladoc Health (TDOC), Gilead Sciences (GILD), Iovance Biotherapeutics (IOVA), Karypharm Therapeutics (KPTI), Forty Seven Inc (FTSV), Kodiak Sciences (KOD) and even Clorox Co (CLX) landing in the top 20 most profitable shorts on a percentage basis.
Other sectors that did well were software, e-commerce and computing\telecommunications. With much of the public limiting their public exposure “at-home use” products and activities the stock prices of companies like Microsoft (MSFT), Apple Inc (AAPL), JD.Com (JD), Peloton Interactive (PTON), ServiceNow Inc (NOW), Pinduoduo Inc (PDD), Alteryx Inc (AYX), Alibaba Group (BABA), Verizon Comm (VZ) and Zoom Video (ZOOM) have surged.
Many of the same stocks can be seen in the list of most profitable short stocks on a percentage basis. The top eight most profitable stocks residing in the biotech, pharmaceutical and healthcare sectors as well as thirteen of the top twenty.
When the markets rebound as the coronavirus effect wanes, we will probably see a pullback in short selling in some of these names as shorts cover to realize their profits. Buying into these “short winners” when the tide turns may create outsized returns as short buy-to-covers trade side by side with long buyers.
In addition to looking to buy short side outperformers as stock process rebound we may see long buying in names that had higher than normal short selling activity since the 24th. The quick and sudden inflow of shares shorted may be followed by just as quick short covering.
Stocks with the largest amount of short selling since the 24th are:
If today’s up-market is followed by several more days of positive stock price movement, we should see short covering activity in many stocks as short sellers realize recently earned mark-to-market gains. A good portion of the $14.58 billion of recent short selling activity may have a short lifespan, but a profitable one if shorts cover in time.
Want deeper insight into the above analysis?
Contact: Ihor.Dusaniwsky@S3Partners.com
Managing Director Predictive Analytics, S3 Partners, LLC
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