There are just under 9,500 actively shorted domestic Equities with $686 billion of short interest on our Black App and Blacklight SaaS platform. Over the past week we have seen net Equity short covering of -$9.93 billion.
There was +$15.06 billion of increased short selling in 27% of the Equities we cover, -$24.99 billion of increased short covering in 37% and 36% of the Equities saw no change in short selling. The league table of the largest Equity shorts continues to be led by the mega cap hedge related Equities and Tesla (TSLA).
Much of the increase in equity short selling was hedging related with the mega and large cap tech stocks such as MSFT, FB and GOOGL in the top five. While there was some obvious quarantine related short selling (HLT, CAT & MAR) there were a few surprises in the top twenty. Increased short selling in stocks like AGN, SQ, JNJ, PG, SHOP and CRM may be due to their recent market outperformance.
On the short covering side, McKesson decline in share shorted is still related to its earlier CHNG spinoff, but most of the other stocks in the top twenty are obvious decreases of short exposure in names that will or are doing well during this crisis. Short sellers are actively trimming their exposure in stocks like DLR (which is involved in digital related real estate), AMZN, MMM, NFLX, T, ZM and NOW. We are seeing some surprising short covering in DIS, but it may be that with shorts already up +37% in mark-to-market profits for the year they may be trimming their positions and realizing profits.
We see several stocks with Short Interest % of Float greater than 60% and their stock borrow rates are increasing due to the lack of liquidity and availability in the stock loan market. Specifically, GME, MNK and GOGO stock borrow rates are getting pushed higher with continued short selling demand into a minimal amount of stock loan supply.
We are seeing stock borrow rates climb significantly in several stocks as stock loan availability is taken down or is disappearing from the market due to long selling. New stock borrow rates for BNTX are now over 160% fee as supply is virtually gone due to its institutional non-lending long shareholders. SDC, GOGO and DDS are also stocks with spot borrow rates over 100% fee, it will be difficult or near impossible to put on any short trades in size in these names. Short sellers may look to exit stocks with high stock borrow rates if the market continues to rebound, paying high daily financing expenses and seeing mark-to-market profits dwindle is the main recipe for a short squeeze.
Domestic equity short sellers are paying just over $13 million/day in stock borrow expenses to keep their shorts on, or $4.69 billion on an annualized basis. Stocks with high daily financing costs are always a candidate for a short squeeze as net-of-financing projected Alpha may prove to be below acceptable levels and trigger short covering. Making +$100 in mark-to-market profits on a short trade, but realizing you paid away -$120 in financing costs does not make for a trade you want to keep on your books.
Both short sellers and long buyers need to keep up to date on short selling activity – knowing which stocks have a short selling headwind or short covering tailwind can add to profits or limit losses in a portfolio.
Want deeper insight into the above analysis?
Contact: Ihor.Dusaniwsky@S3Partners.com
Managing Director Predictive Analytics, S3 Partners, LLC
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