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S3 Research

S3 Analytics: Hottest Short Stocks as of January 23rd

And then there were none. McDermott Intl (MDR) and Clovis Oncology (CLVS) stock borrow fees were both over 100% last month, but now the most expensive domestic stock borrow rates are not even topping 70% fee. CLVS rates have nosedived from 108% fee as recently as January 9th to 2.54% fee today as 4.72 million short shares, 18% of total short sales, were covered in January. While McDermott Intl’s stock borrow fee is 233% fee, the stock has entered bankruptcy, ticker is now MDRIQ, and its short interest has fallen beneath our $50 million threshold. Stocks with strong upwards rate pressure are Inmode Inc (INMD), GTT Communications (GTT), SmileDirectClub Inc (SDC) and Tanger Factory Outlet Centers (SKT). We can expect stock borrow rates in these names to climb significantly in the short term.

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January Short Squeeze Candidates

There are two primary forces that produce short side squeezes – trading losses and high stock borrow financing costs. Over the past month there were nineteen domestic stocks that had short interest over $50 million with stock borrow fees increasing by 1.00% fee or more. Of those nineteen, there were twelve stocks that lost money in January.

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Cannabis Short Selling 2019 Recap

Even with a gain of +$75 million on Tuesday, short sellers in the twenty most shorted cannabis stocks are down -$132 million, -4.0%, in net-of financing mark-to-market losses in December, bringing year-to-date P\L down to +$993 million. The biggest short-side losers for the month are shorts in Canopy Growth (CGC US, WEED CN), GW Pharma (GWPH US), Aphria Inc (APHA US, APHA CN) and Cronos Group (CRON US, CRON CN). The biggest short-side winners are Aurora Cannabis (ACB US, ACB CN); Charlottes Web (CWBHF US, CWEB CN) and Tilray Inc (TLRY US). In 2019, Aurora Cannabis (ACB US, ACB CN) and Cronos Group (CRON US, CRON CN) were the best performing shorts in the sector, with both shorts the only stocks with over $200 million of year-to-date mark-to-market profits.

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S3 Analytics: December Short ETF Analytics

We are tracking over two thousand ETF’s with $167 billion of Short Interest in the domestic ETF market. Overall, we saw a -$626 billion of incremental net short covering in December as short sellers increased their short exposure on 49% and decreased their exposure on 44% of the 2,162 domestic ETF’s that we cover (7% had no change in shares shorted).

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Hottest Short Stocks as of December 24th

There are two stocks with rates over 100% fee in the U.S. domestic market. McDermott Intl (MCD) rates have been climbing since the firm reported a $1.9 billion quarterly loss in November and its CFO, Stuart Pence, resigned. Clovis Oncology (CLVS) stock borrow rates spiked in mid-November along with its stock price as M&A activity in the biotech sector shows signs of picking up. Both stocks have minimal stock borrow availability, forcing rates higher.

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Tesla Short Losses & Covering Turning Into a Squeeze

Tesla Inc (TSLA) is truly a tale of two securities, while the stock is up a respectable +21% for the year, it is up a blistering +126% since it’s low of $178.97 on June 3rd.

Tesla short sellers were in the “best of times” and up +$5.16 billion in net-of-financing mark-to-market profits as Tesla lost -46% of its value from January 1st to June 3rd 2019, nearly offsetting the -$5.75 billion of mark-to-market losses they incurred from 2016-2018.

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Cannabis Shorts Down $132 million in December

Even with a gain of +$75 million on Tuesday, short sellers in the twenty most shorted cannabis stocks are down -$132 million, -4.0%, in net-of financing mark-to-market losses in December, bringing year-to-date P\L down to +$993 million. The biggest short-side losers for the month are shorts in Canopy Growth (CGC US, WEED CN), GW Pharma (GWPH US), Aphria Inc (APHA US, APHA CN) and Cronos Group (CRON US, CRON CN). The biggest short-side winners are Aurora Cannabis (ACB US, ACB CN); Charlottes Web (CWBHF US, CWEB CN) and Tilray Inc (TLRY US).

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No Kidding Around, 50% of The Children’s Place Sold Short

Shares of the Children’s Place (PLCE) closed down 23% yesterday after posting disappointing 3Q results and providing a weak 4Q forecast.  The drop netted speculative bearish investors a one-day paper gain of $121.7 million, pushing 2019 year-to-date gains to $278.6 million, yielding an ROI of +53.6%.

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Why Stock Borrow Costs Matter

While long shareholders only have to worry about their stock performance and, if they are using leverage, relatively static financing costs, short sellers have to pay attention not only to their stock’s performance but also fluid short financing (stock borrow) costs. While the vast majority of stock borrows trade at General Collateral levels (the cheapest stock borrow costs for the easiest to borrow stocks), 35% of all U.S. equities trade at non-GC levels and 9% of them trade at levels over 10% fee. These non-GC stock borrow costs can take a large bite out of mark-to-market profits and exacerbate mark-to-market losses.

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