Home Depot (HD) reported third quarter earnings this morning and even though they beat on estimated EPS the firm missed on revenues and same store sales as well as lowered future profit expectations and growth forecasts. The stock is down over -5% on the news, with the $2.7 billion of short sellers making $145 million in mark-to-market profits on the news. Along with HDâ€™s price weakness, Lowes Cos (LOW) is also down on the news, falling -1.75% and earning its $1.2 billion of short sellers +$26 million in mark-to-market daily profits.
Short selling in the Home Improvement Sector has been growing steadily throughout 2019 with total short interest in the sector to $4.33 billion. This is an increase of $1.44 billion for the year, a 50% increase. The largest shorts in the sector, as expected are Home Depot and Lowes. Part of the increase in short exposure is due to both stocksâ€™ strong performance in 2019, with HD up +39% and LOW up +25% for the year prior to todayâ€™s negative price moves. But while HD short sellers were selling into the rally and building their exposure, LOW short sellers were covering into the rally and keeping their exposure relatively stable throughout the year.
HD short sellers sold an additional 2.82 million shares in 2019, an increase of +33% while LOW short sellers covered 1.95 million shares, a decrease of -16%. As a result, HD short exposure increased by $1.25 billion in 2019 while LOW short interest only increased by +$60 million in 2019.
Ahead of this earnings season short sellers were busy re-jiggering their exposure in the two Home Improvement stocks. For the last month, HD shorts covered -712 million shares, a decrease of -6%, but nudged their exposure a bit higher over the last month by shorting 98 thousand shares, an increase of 1%.
After decreasing their short exposure for most of the year, LOW shorts bumped up their short selling over the last month, selling an additional 540 thousand shares, an increase of +6%. Over the last week, their short selling continued with 192 thousand new shares shorted, +2%, over the last week.
e chart below, Home Improvement Retail Sector short interest has been climbing steadily in 2019, mostly due to HD short selling and offsetting short covering in LOW.
With HD short sellers making a windfall profit on todayâ€™s price move we should see a continuation of this past weekâ€™s increased short selling as well as continued LOW short selling, especially if we get similar earnings results when they report tomorrow.
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