The weeklong rally from last week’s lows has taken a bite out of the $93.7 billion of mark-to-market profits, +11.12%, short sellers have earned since the beginning of October. Over the last week the S&P 500 index increased by 3.31%, the Nasdaq by 4.3% and the Russell 3000 by 3.23%. The S3 Blacklight platform tracks over 8,000 U.S. domestic equity shorts worth over $825 billion, which incurred mark-to-market losses of $23.3 billion, or -2.86%, over the last week.
Surprisingly, with indexes posting broad gains only 59% of the shorted stocks incurred losses, but those stocks were the also the most crowded shorts. The total average short interest of the least profitable shorts was $675 billion versus $138 billion for the most profitable shorts.
The profitable shorts over the last week ranged across multiple sectors and only one stock had short interest over $1 billion. These were not the over-crowded momentum or hedging short plays, but actually shorts with a reason behind them such as country risk (ITUB, VALE & IQ); tariff risk (UTX, VALE & X); sales and earnings risk (TIF & SJM) or overheated sector risk (ACB.)
While the most profitable shorts over the last week ran the gamut of sectors and sub-industries, the securities with the largest losses were some of the most crowded shorts and mostly tech and retail stocks. Six of the least profitable shorts are mega-caps that are also in the top ten most shorted stocks in the U.S. market (BABA, AMZN, CVS, QCOM, NFLX & MSFT.) These are stocks that are not only alpha plays but also beta hedges which usually outperform on both the upside and downside in volatile market conditions.
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Managing Director Predictive Analytics, S3 Partners, LLC
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