The FAANG stocks are five of the top ten most shorted stocks in the domestic U.S. stock market and because of the sheer size of combined short exposure they represent both risk â€śAlphaâ€ť trades and hedging â€śBetaâ€ť trades.
Advanced Micro DevicesAlibabaAmazonCannabisConsumer DiscretionaryCVS HealthHealth CareIndustrialsInformation TechnologyMicrosoftNetflixQualcommS3 PartnersSectorsSquare
The weeklong rally from last weekâ€™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.
Like Black Friday shoppers, investors are discounting prior performance and looking forward to the holiday shopping season to decide which retailors to put on their naughty or nice lists. Most of the larger retailers posted impressive previous quarter sales but investors are looking closely for signs for potential holiday misses. Retailers such as Target Corp (TGT), Kohlâ€™s Corp (KSS) and TJX Cos (TJX) are looking at profit margin rates and profit guidanceâ€™s that may not meet expectations as they ramp up e-commerce, shipping and remodel stores to lure in buyers. Several retailers are having revenue and operational difficulties with L Brands (LB) cutting its dividend, Lowes (LOW) closing down two home improvement subsidiaries and its Mexican retail operation and Sears (SHLDQ) filing for bankruptcy.
FAANG stocks (FB, AMZN, AAPL, NFLX & GOOGL) were down 4.7% last week, 3.6% on Friday alone, after Amazon.com and Alphabet announced disappointing quarterly results amid overall weakness in the tech sector. While long shareholders incurred large losses from these widely held stocks, short sellers made $1.62 billion in mark-to-market profits last week.
Amazon short interest is at $8.57 billion, with 5.21 million shares short, for 1.28% of the available float. 3rd Quarter earnings per share beat estimates but revenues missed. The stock was up 7% during the day but is now down 5% after hours. Shorts were down $615 million in mark-to-market losses at the market close but are now recouping $459 million of those losses in the aftermarket. Shorts were building their positions ahead of Amazon.comâ€™s earnings release with 360 thousand new shares shorted over the last week. We may see continued short selling in the morning if shorts expect this aftermarket price weakness to continue as analysts dive deeper into Amazon.comâ€™s results.
Tesla Inc (TSLA) and the FAANG stocks continue to be some of the largest shorts in the U.S. market, taking five of the top ten spots in the U.S. league table. While Tesla is a momentum, value and convertible arbitrage short, one of the main drivers for the large short interest in the FAANG stocks is their ability to be a â€śturbochargedâ€ť hedge for the long side of a portfolio.
Amazon.comâ€™s (AMZN) pursuit of being the retailer of choice for as many product lines as possible has reached into the prescription drug industry with its purchase of online pharmacy PillPack Inc. (Private Company) for an estimated $1 billion. This follows CEO Jeff Bezosâ€™ recent alliance with Berkshire Hathaway Inc. (BRK/AB) and JPMorgan Chase (JPM) to form a joint venture to address the complexity and high cost of worker health benefits. Stocks in the soon to be disrupted Drug Retail and Healthcare Distribution Sectors felt the pain immediately with the average stock price in the two sectors down 5.6% at the close. AMZNâ€™s stock price is up 2.5% on the news, generating a $20 billion increase in its market cap on the impending $1 billion PillPack purchase.
State and local tax authorities will now be able to charge and collect taxes for online transactions executed by their constituents after the Supreme Court of the United States (SCOTUS) reversed a 1992 ruling which excluded online transactions if the seller did not have a physical presence in the state. This ruling now puts online retailers and brick & mortar retailers on a level taxable playing field.Â The news pushed most Internet Retailers into the red, with short sellers up $184 million in mark-to-market profits on their short holdings.
Amazon.com Inc.â€™s (AMZN US) foray into the Food & Staples Retailing sector took a surprising turn with its announced acquisition of Whole Foods Market Inc. (WFM US). AMZN is offering $42/share for WFM, a 27% premium to Thursdayâ€™s closing price, making the deal worth $13.7 billion. AMZN has been expanding into the Retail Food sector via its AmazonFresh Grocery and Amazon Pantry divisions and brick and mortar food retailers have felt the pressure and stock effect of AMZNâ€™s online dominance. WFM short interest is $1.19 billion after its price shot up to $41.99 after the acquisition was announced, and WFM continues to be largest short in the U.S. Food and Staples Retailing sector. Short sellers were already down $153 million in year-to-date mark to market P/L before the announcement, they incurred an additional $250 million in losses on todayâ€™s 27% price move. Shorts are now down $404 million year-to-date, or down 36.3%, on an average yearly short position of $1.1 billion.
Earnings season is set to get into full gear and these are the top twenty-five S&P 500 stocks with the largest change in $ short interest. While the change in short interest of certain stocks like Facebook (FB), Amazon (AMZN) and Netflix (NFLX) are primarily momentum and value based, other changes in short interest may be an increase of short exposure in anticipation of weaker than expected earnings. The S3 Black App Screener Tool allows you to sort for changes in short interest prior to earnings announcements.