Yesterday’s worldwide market sell-off brought about by the possibility of China Evergrande Group’s (3333 HK) credit default was a profitable market event for short sellers. Total U.S. equity short interest is $1.13 trillion, and shorts were up +$24.39 billion, +2.16%, in one day mark-to-market profits as the S&P 500 fell -1.70% and the Nasdaq fell -2.19%.
90.3% of every dollar shorted, $1.02 trillion, was profitable with a return of +2.48% while the $96 billion of unprofitable shorts were only down -0.90% ($13 billion of shorts were flat on the day). With short sellers up significantly in one-day mark-to-market profits there may be an urge to realize those profits when the market rebounds. These buy-to-covers would add a secondary push to stock prices along with long buyers looking to buy temporarily underpriced securities.
The most profitable mark-to-market 9\20 shorts in dollar terms were:
While looking at the most profitable shorted stocks in dollar terms, those numbers are partly determined by the size of the short position. Looking at one day returns in percentage terms will give us greater insight into stocks that are more likely to tempt short sellers to cash in their chips after winning a big hand instead of letting their wager ride.
Short positions with the largest percentage return and short interest over $1 billion (where sizable short covering may affect stock prices the most) are:
Short positions with the largest percentage return and short interest over $500 million but under $1 billion (where sizable short covering may affect stock prices somewhat) are:
Short positions with the largest percentage return and short interest over $100 million but under $500 million (where sizable short covering may affect stock prices slightly) are:
The Hang Seng Index was down -3.30% yesterday and HK\China short sellers made $4.28 billion in one-day mark-to-market profits, +4.11%, on $104.2 billion of total short interest.
93.7% of every dollar shorted, $97.6 billion, was profitable with a return of +4.47% while the $5.7 billion of unprofitable shorts were only down -1.39% ($0.9 billion of shorts were flat on the day). Just with U.S. short sellers, HK\China short sellers that are up significantly in one-day mark-to-market profits there may have an urge to realize those profits when the market rebounds.
The most profitable H.K.\China shorts in dollar terms were:
The most profitable H.K.\China shorts in percentage terms were:
While “what goes down must go up” does not apply to every stock, historically we have seen significant rebounds from large market corrections that create buying opportunities to capture larger than expected potential Alpha and short covering opportunities to capture realized Alpha. We may see a surge in buy-to-covers in these one-day short side winners which will exacerbate up-side moves as long buyers come into the market looking to reallocate their portfolios into “cheap names”.
Looking at short selling trends over time provides insight into overall market sentiment as well as the strength of bearish conviction in individual equities. 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.
Research Note written by Ihor Dusaniwsky, Managing Director of Predictive Analytics, S3 Partners, LLC
For deeper insight into short side data and analysis contact me at Ihor.Dusaniwsky@S3Partners.com
For short side data and access to our research reports go to https://shortsight.com/ .
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.