Strong markets offer great opportunities for those contrarian investors who believe that a stock’s price has got ahead of fundamentals. But it looks like the shorts might have taken a bath on their positions in MYOB.
The stock’s rise has seen a capitulation in the level of outstanding short positions in the stock as measured by short interest ratio (SRI), which estimates how many days it would take to cover the amount of short contracts in the stock based on recent average daily volumes of trade, according to data provided by analyst Angus Nicholson at IG.
From last week’s SRI of 92.6, the MYOB short positions have collapsed to just 22.3 as the stock has climbed to a new all time high today of $3.89 a share.
Perhaps investors liked the announcement this week that MYOB was buying New Zealand-based Greentree in a NZ$28.5 million ($27 million) deal to expand its position in the mid-market tier.
But no doubt the unrelenting advance played a big role in short sellers cutting their positions.
But while MYOB might not be alone as a potential widow-maker trade for those shorts who have capitulated, the sellers are unfazed by similarly strong price action in Seven Group.
Not to be confused with the recent collapse in Seven West Media’s price, Seven Group Holdings is looking strong and making new 15-month highs at $7.05 a share. But this strength has only seen a small reduction in the SIR from 57 days to 51 days.
Both MYOB and Seven’s moves to new highs in recent days are remarkable given the overall ASX200 index is down 130 points, 2.33%, from this week’s highs.
Clearly the shorts aren’t always wrong.
And IG’s Nicholson says “Myer (MYR) has really shot up the short interest ratio (SIR) rankings over the past week after it struggled to break through A1.35 last week” even though overall SIRs in the top 10 mostly fell over the past week.
It’s also broken its recent uptrend line this week which could embolden the bears in this stock.
Here are the rest of the top 10 shorts by days to cover.
And here is the list of this week’s big movers.
Nicholson told Business Insider “there has been some interesting developments over the past week with both National Storage REIT (NSR) and Graincorp (GNC) seeing big jumps in short positions”.
He said that “NSR saw a massive 18.7% collapse in its stock price from its May high to its July low. But after the stock has begun to recover a little bit, shorts have started to pick up noticeably and it appears A$1.5 is in their sights”.
Graincorp’s recent volatility seems to have attracted the sellers. The stock dropped 8.9% after Archer Daniels Midland (ADM) announced it was pulling its bid and then bounced sharply.
“But it seems investors don’t believe this recovery will last and have piled up an 80.9% week-on-week increase in short positions in the stock,” Nicholson said.
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