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Oct 21, 2016

S3 BLACKLIGHT: $1.3 Billion of Amazon Short Term Shorts Bought To Cover Last Week

Last week I wrote that the short interest in Amazon (AMZN US) had increased 52% since mid-September to hit a historical high of $5.3 billion. With analysts increasing their target price for Amazon to $1,000 and above and nothing but rosy news in their financials, operations and multi-faceted revenue streams there did not seem to be a fundamental or valuation reason for the spike in short selling. Amazon, which was up over 22% for the year, was more of a momentum play and traders were betting on a short term cool down of Amazon’s stock price after it recently hit its historical high of $844.36.

It looks like short sellers are beginning to cover their short term bets. Since September 13th, we’ve seen Amazon’s stock price drop almost $19 to $810.32, down 2.3%, and short interest has also retreated from its recent highs. Recent short sellers must be Amazon Prime members and are taking advantage of their free return policy as short interest has dropped $1.3 billion to $4.1 billion, or 23%, in the last week. Even though Amazon’s short interest is back below $5 billion, this is still a relatively high level as Amazon’s 2015 average short interest was $3.0 billion and 2016’s is $3.7 billion so far.

As I stated in my earlier report, since the recent increase in short interest was momentum based I expected any reversal in this trend to be quick and concentrated. No trader wants to be caught short Amazon on its march to a $1,000 price. If Amazon returns to the short interest levels of May to early-September we still have over $500 million of short covering ready to go. Any significant increase in buying demand would be turbocharged with short sellers quickly buying to cover to lock in some of the profits they made in the last week. 

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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