It’s been a fortnight since my last look at the level of shorts in Australian stocks. MYOB remained the top most shorted stock in terms of position size of the shorts relative to average daily turnover. But in that short time the short interest ratio (SRI), which measures how many days it would take to cover the amount of short contracts in the stock based on recent average volume, has risen by 50% according to analyst Angus Nicholson at IG.
His data shows MYOB’s SRI has risen from 65.6 to a phenomenal 92.6. That means on days of normal volume, it would take more than 18 weeks for the shorts to buy enough MYOB stock to close out their positions. That’s dangerously unbalanced. But the fact that the short is growing as the stock rallies tells us someone has a very big beef with MYOB, its business plan, or its profitability going forward.
In many ways though MYOB is not the most remarkable move. Rather it is the sharp selling in Nine Entertainment and Seven group, both of which have moved from outside the top 10 stocks in terms of SRI to a level of short positioning, which would take close to 12 weeks worth of usual turnover to buy back.
Of course the shorts would argue that when the pullback in these stocks comes the volumes will increase as weak longs exit on any pullbacks.
That’s a strategy that might work with MYOB and Seven Group given the selling has been into strength and range highs. But Nine is interesting given its stock price has been beaten down so much over the past year and is sitting at range lows.
That suggests a more bearish underlying reason behind the selling of Nine.
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 says “despite the rally in the healthcare space, short positions in Blackmores have begun to climb again over the past week. Some investors may be speculating that China’s introduction of much stricter regulations on foreign imports could affect earnings or guidance at BKL’s upcoming earnings release”.
Here are the big movers.
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