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Nov 30, 2018

S3 Analytics: Shorts Down $23 Billion as U.S. Indexes Rally Over 3% Over the Last Week

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.

Want deeper insight into the above analysis?
Contact:  Ihor.Dusaniwsky@S3Partners.net
                 Managing Director Predictive Analytics, S3 Partners, LLC
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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