Shoppers are not the only ones preparing for Black Friday and the holiday shopping season, short sellers have been busy updating their naughty and nice lists prior to the post-Thanksgiving shopping surge. The overall U.S. Retail Sector has $59.7 billion of short interest, an increase of $2.1 billion, or 3.65%, over the last month. Most of that activity was seen in the last week, with short interest increasing by $1.9 billion, or 3.29%.
The top twenty most shorted stocks in the retail sector range from internet to brick & mortar stores but one theme that carries through most of the list is Amazon.com’s effect on several of the sub-sectors. Amazon’s reach into electronics, media streaming, travel, home furnishing and automotive parts has molded the content of the top twenty.
Over the last week, traders have been tweaking their exposure ahead of the Black Friday shopping starting gun and have been increasing their positions primarily in the Apparel and Internet sub-sectors.
Companies with over $100 million of additional short activity over the last week are Amazon.com (+$212), RH (+$182), Expedia (+$164), Priceline (+$164), Footlocker (+$157) and Home Depot ($148). Amazon continues to be a proxy short for the Internet sector; RH has been rallying since the beginning of September and shorts may be looking for a stock price pullback if earnings don’t beat expectations; Expedia and Priceline are Amazon casualties; Footlocker’s stock price has declined almost 50% since May and shorts may not be willing to close their positions until they see 4th quarter results which replicate 3rd quarter’s strength; and Home Depot shorts may be looking for a pullback after a full year of constant stock price growth.
On the other side of the spectrum, Target is the only stock with $100 million of short covering over the last week as the company beat on earnings and sales growth in the 3rd quarter. Best Buy and Williams-Sonoma had just under $100 million reduction in short interest. Best Buy has been trading in a narrow range for most of the year, shorts may be thinking they are due to outperform in the 4th quarter after several lackluster earnings periods. Williams-Sonoma has underperformed along with much of the retail sector in 2017, shorts may be looking at its continued steady albeit moderate earnings growth as a precursor to a spurt in late 2017/early 2018 and cutting their exposure to lock in profits.
The Retailing Sector is the third most shorted sector in the U.S. market, trailing only Software & Services and Energy. Short sellers are re-allocating their Retail Sector exposure in their portfolios in an effort to pick the stocks that will underperform in this holiday shopping system – Apparel and Internet Retail seem to be the sectors to short this year.
Want deeper insight into the above analysis? Contact:
Managing Director Predictive Analytics, S3 Partners, LLC
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