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Sep 13, 2016

S3 BLACKLIGHT: Alibaba’s Stock Price and Short Interest Rises in Tandem

Short interest is Alibaba Group ADR (BABA US) had been in a $6 to $8 billion trading range from October 2015 to July 2016 but after reporting strong earnings on August 10th short interest has grown significantly along with its stock price.

Alibaba’s stock price is up 22% for the year but most of that price move occurred since the end of July. Alibaba hit its year to date high, $103.78, on September 6th and has recently given back some of those gains and is trading at $99.72 today. The stock price is up 21% since the end of July.

The recent price run-up has created a technically overbought condition for BABA and with it, the likelihood of a temporary correction. A 10% reversal would bring Alibaba’s stock close to its $88 support level.

Alibaba short interest has moved into uncharted territories in the 3rd quarter, topping $10 billion for the first time in mid-August, $12 billion in early September and hitting $13.4 billion today.  Alibaba’s short interest growth has mimicked its stock price and while it is up 72% year to date, up $5.6 billion to $13.4 billion, most of this growth occurred since the end of July, an increase of $5.2 billion, or 62%.

The S3 Relative Velocity Indicator, a measure of the real-time relative change in shorting activity, has recently turned up sharply, reflecting the $3 billion of new short activity in the last several weeks. Alibaba’s stock borrow is still trading at general collateral levels, the cheapest borrows for the easiest to borrow stocks, but if short activity continues to increase at this pace borrow rates may rise for the first time in Alibaba’s history. About half of Alibaba’s lendable stock is presently on loan but once we get closer to 70% usage, an increase of another $4 billion in short selling, we will see rates begin to move up to the 1% fee level.

For more information on the above analysis, please contact:
Ihor Dusaniwsky, Head of Research, S3 Partners, LLC     Ihor.Dusaniwsky@S3Partners.net

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 decision.

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