Short Interest

NYSE Short Interest Drops To 5 Month Low

One place where the S&P level still does have a modest influence is the number of shorts in the market, which are strategically used by repo desks and custodians (State Street and BoNY), to force wholesale short squeezes at given inflection points, usually just when the bottom is about to drop out. The problem is that even short squeezes are increasingly becoming fewer and far between, for the simple reason that the Fed has managed to nearly anihilate shorters as a trading class with its policy of Dow 36,000 uber alles. This was demonstrated with the latest NYSE Group short interest data, which tumbled to 13.6 billion shares short as of the end of September, or the lowest since early May, just as the market was swooning to its lowest level of 2012 to date.

Presenting The Most Shorted Stocks

By now it should be no secret that under the New Centrally-Planned Normal, good is great, but worst is far greater. It is therefore no surprise that in the past year, some of the highest returning stocks have been the companies which have seen wave after wave of shorts come in, attempting to ride the underlying equity value to zero, only to see themselves scrambling to cover short squeezes, generated either due to the pull of borrow by an overeager shareholder (think SHLD), or due to bad news not being horrible enough, leading to short covering ramps (think AMZN at each and every worse earnings call, which however is never bad enough to finally trounc the last traces of the "bull story"). Which is why, as we have done on various occasions in the past, we have collated the most hated stocks in the less prominent but far more volatile Russell 2000 Index, where we have limited the universe to the 700 or so stocks with a market cap between $50 million and $1,000 billion, or those which tend to have aggressive moves up or down on modest volume (i.e., not widely owned). We have then sorted these in descending order of Short Interest as a % of Float. The results are presented below.

Career Risk Panic: Only 11% Of Hedge Funds Are Outperforming The S&P In 2012

The S&P500 may be soaring to new 2012 highs, and has its all time highs within short squeeze distance, yet paradoxically this is arguably the worst possible news to the cadre of US hedge fund managers used to beating the market year after year, thus justifying their (increasingly more unsustainable) 2 and 20 fees. The reason: according to just a released report quantifying hedge fund performance so far in 2012, with an average return of 4.6% as of August 3 compared to a 12% return for the S&P, a pathetic 11% of all hedge funds are beating S&P year to date. This is the worst yearly aggregate S&P 500 underperformance by the hedge fund industry in history, and also explains why the smooth sailing in the S&P500 belies the fact that nearly every single hedge fund manager (and at least 89% of all) is currently panicking like never before knowing very well there are only 4 more months left to beat the S&P or face terminal redemption requests. And with $1.2 trillion in gross equity positions, the day of redemption reckoning at the end of the year (and just after September 30 for that matter as well) could be the most painful yet. it also explains why, just like every other quarter in which career risk is at all time highs, HFs are dumping everything not nailed down and buying up AAPL, which as of June 30 was held by an all time high 230 hedge funds (more on that later).

Bronze Is The New Gold And Why Swallowing Aliens Never Ends Well

It's not unheard of for stocks to rally when economic conditions are weak, particularly when corporate profits are doing well; Q2 marked a new all-time high run rate of S&P profits. As a result, the 13% gain in the S&P this year is not a complete anomaly. But, as Michael Cembalest of JPMorgan notes, in prior cycles, 'weak economy' stock market rallies were predicated more on the view that a private sector recovery was just around the corner, rather than the current view that more Central Bank stimulus is just around the corner. The other notable aspect of the rally is that it took place as earnings forecasts for 2012 and 2013 have been falling, and as Q2 revenue growth slowed. To paraphrase what’s going on, Cembalest believes "Bronze is the new Gold" as expectations are so low, that anything better than recessionary data can be well-received by markets. Of course, the other factor behind the recent rally is the prospect of unlimited bond purchases by the ECB to which the JPM CIO science-fictionally analogizes: "Swallowing an alien is one sure-fire way to get rid of it, but then you have to wonder what happens once it gets digested. Color me nervous how this all turns out."

NYSE Short Interest Plunges By Most Since January, As Equity Outflows Hit One Month High

Those hoping that the recent short squeeze which took the market to just why of its 2012 highs will repeat itself may be disappointed, because according to the NYSE, Short Interest as of June 29 plunged to 14.2 billion shares, from well over 14.7 billion two weeks prior, a drop of over half a billion shares, or the most since January, when the combination of LTRO 1, Twist and renewed hope that the economy was "improving" forced 783K shares to cover into the big October-March ramp. The current short interest level of 14.2 billion shares is the third highest of 2012, and was last seen back in November 2011 when the market needed a global coordinated intervention and the ECB's LTRO announcement to prevent i from taking out 2012 lows.

Is The MBIA vs BAC Saga Ending In Under 24 Hours?

Anyone who has followed the MBIA vs Bank of America saga knows that the only reason why there has been no settlement so far is due to BAC's relentless stonewalling tactics that seek merely to delay the production of discovery which based on preliminary indications is sufficiently damning to let MBIA prevail in the case, and with that to force settlement that based on our and others' former evaluations, could lead to a doubling in the stock (ignoring the massive short-covering squeeze it would immediately create courtesy of the 15.5% Short Interest of the total float, sending the stock even higher than where fundamentals say it should go). Well, based on a just released transcript of Judge Eileen Bransten motion to compel discovery, the end may be in sight, and may come as soon as July 13, or tomorrow. And what is more important, her displeasure with BofA's relentless stonewalling has come to an end. Will Bank of America have no choice but to settle in the very immediate future? Stay tuned to find out.

Two And Twenty And Zero To Show For It As Hedge Funds Underperform The Stock Market

With AAPL and several other strange-attracting hedge fund hotels dominating the holdings of the 2-and-20'ers, we thought it timely that Bloomberg TV would point out today that their aggregate hedge fund index is now significantly underperforming the S&P 500 (from both the top in 2007 and the lows in 2009 - in order to be fair). While the assumption is that 'sophisticated' investors are paying for alpha - and as always the focus is absolute return on the way up no matter what the mandate - it seems the extreme correlations both across asset-class and within-and-across individual equities (as we have discussed in depth - most recently here) have indeed eaten into any 'value' that has empirically been added. As The Economist notes, in June "funds suffered the largest withdrawals in assets since October 2009." Furthermore, as Citi's recent study on risk drivers shows, the high-beta momentum trade has become by far the most crowded trade around - so even sales of DB9s and NYC apartments are now entirely dependent on NEW QE coming before year-end.

And The Reason For Today's Bathsalts Rally Is...

... Nothing more (or less) than NYSE short interest as of June 15 (at 14.7 billion shares) soaring to the highest since October 2011, just before the mega ramp on the previously mentioned October 26, 2011 Greek "Bailout" started on another total non-event as history would show (as would be the ensuing global central bank interventions, and LTROs 1+2). This is also tied for the 3rd highest short interest since July of 2009. Which brings us to the following question: we know that over the past month the only stock "market" catalysts have been small groups of "educated" central-planners: the Fed, SCOTUS, and Eurocrats, with the only upside catalyst being taxpayer cash. Does the chart below mean that the only technical item that matters is Short Interest (as well as short interest in the highly levered and beta-rally inducing EUR), and every time this number rises above a given threshold the various Wall Street repo desks will merely engage in forced buy-ins and cause epic short squeeze like the one today? We don't know. However, we do know that with both long-side and short-side trading becoming meaningless and everything now just an HFT-facilitated stop hunt, this is the surest way to make sure nobody is left trading these markets anymore, something which relentless ongoing cash outflows from equity funds confirm every single week. The good news: once the weak hands have covered, a new wave of shorts can reenter, only to be burned as well on the next overhyped non-event out of Europe or anywhere else.

At The End Of May NYSE Short Interest Soared To November 2011 Levels, Leading To Epic Short Squeeze

Wondering just what precipitated the near-record short covering squeeze in the first week of June on nothing but speculation of a Spanish bailout (hence materialized, and proven to be a massive disappointment), and the latest Hilsenrath rumor of more QE? Look no further than the chart below: as of the end of May, the short interest on the NYSE soared by over 800 million shares, bringing the total to 14.3 billion, the highest since November 30, when the market was 6% lower. And since the street's repo desks were fully aware the market was overshorted from a historical basis for this price level, it would be very easy to initiate a short covering squeeze, kicking out the weakest hands which had piled in in the second half of the month. The issue is that now that these shorts have been burned once more, even as the market is once again tumbling, and there is no easy way to spook a liftathon when every offer is lifted regardless of price, the next attempt at levitating the market on mere speculation and innuendo will be far more difficult. At this point it is all up to the Fed: unless Ben delivers in 9 days, it may get very ugly. And of course there is the apocalyptic scenario, where Ben does hint at the NEW QE, and the market pulls a Spain bailout, ramping higher as a well-habituated Pavlovian dog, only to plunge. Because if the central bank is unable to lift the stock market, which directly and indirectly accounts for 68% of all US household assets... what else is left?

Live Greek Election Poll Tracker

Courtesy of Reuters, we now have a handy, bookmarkable interactive chart for everyone's convenience to keep track of this data. And while we still believe the actual result will be meaningless, as a coalition government, either pro or against bailout, will be unformable, we are certain that the second we read that Syriza support is waning (one day, only to surge the next), the EUR, courtesy of its record short interest, and all related risk assets will soar. Keep a close eye on this chart.

Why Corporate Balance Sheets Just Don't Matter In The New ZIRP Normal

By now everyone knows that Chesapeake is a slow motion trainwreck: whether it is internal management issues, which eventually will culminate with the long overdue termination of the company's head (something the company had much control over and could avoid, but didn't, and should result in the sacking of the entire board for gross negligence), or plunging gas prices (something it had far less control over, but could have hedged properly, yet didn't), what is absolutely certain is that the firm's cash flow just isn't what it used to be. In fact, according to some, it is quite, quite negative. What, however, people do not know is that under ZIRP, when every basis point of debt return over 0% is praised, and an epic scramble ensues among hedge for any yielding paper no matter how worthless, the balance sheets of companies just do not matter. In other words, for companies that have massive leverage, high interest rates, negative cash flow, which all were corporate death knells as recently as 2008, the capitalization structure is completely irrelevant. We said this a month ago when we cautioned, precisely about Chesapeake, that "to all those scrambling to short the company: beware. CHK has a history of being able to fund itself with HY bonds and other unsecured debt come hell or high water. If and when the stock tanks, the short interest will surge on expectations of a funding shortfall. Alas, courtesy of the Fed's malevolent capital misallocation enabling, we are more than confident that the firm will be able to issue as much HY debt (unsustainably at 10%+, but that is irrelevant for the short-term) as it needs, crushing all short theses. What this means, simply, is that anyone who believes traditional fundamental analysis will and should work in the CHK case is likely to get burned." Sure enough, we were again proven right: Chesapeake just announced, following today's epic drubbing, that it is refinancing its secured debt facility (with its numerous restrictive covenants) with $3 billion in brand new Libor+7.00% unsecured paper (courtesy of Goldman and Jefferies). In doing so, CHK just got at least a one year reprieve.

NYSE Short Interest Rises To 2012 Highs

On the surface, the fact that NYSE short interest was just reported today to have risen to 13.1 billion shares as of April 30 could be troubling for the bears, as this just happens to be the highest short interest number of 2012. Indeed, an increase in short interest into a centrally-planned market is always disturbing, as it opens up stocks to the kinds of baseless short covering melt ups that simply have some HFT algo going on a stop hunt as their source, that we have seen in the past several weeks. Naturally, it would be far easier to be short a market in which Ben Bernanke managed to eradicate all other bears, especially when considering that a year ago the Short Interest as of April 30 was virtually identical.

Chesapeake Renegotiates Terms Of Wells Deal, Stock Soars On Short Covering Spree

Two weeks ago, when reporting on Chesapeake's most recent legal problem in the aftermath of the Reuters report on McClendon's private well deal, we explicitly said: "to all those scrambling to short the company: beware. CHK has a history of being able to fund itself with HY bonds come hell or high water. If and when the stock tanks, the short interest will surge on expectations of a funding shortfall. Alas, courtesy of the Fed's malevolent capital misallocation enabling, we are more than confident that the firm will be able to issue as much HY debt (unsustainably at 10%+, but that is irrelevant for the short-term) as it needs, crushing all short theses. What this means, simply, is that anyone who believes traditional fundamental analysis will and should work in the CHK case is likely to get burned, especially if China is involved which will have its own tactics vis-a-vis the future of McClendon and/or CHK. And all, of course, courtesy of the Chairman of course." Sure enough, we just got confirmation of what happens when a company that everyone has left for dead gets a bit of good news, in the form that CHK has ended the wells deal and is looking for a new chairman: the stock explodes, as it has this morning when it is now nearly 10% higher in the pre market. That, and the fact that everyone and their grandmother is short, also doesn't help.