Are Short Sellers Signaling a Rally?
Author:
Ihor Dusaniwsky
Managing Director of Predictive Analytics, S3 Partners
Total U.S. and Canadian short interest has increased by $14.7 billion in October, but the increase consisted of a $24.8 billion increase in the mark-to-market value of shares shorted due to the recent rally which is being partially offset by $10.1 billion of short covering. Short sellers are actively trimming their exposure as the market rallies, as they incurred mark-to-market losses, instead of holding firm and waiting for a market reversal.
Sector (in $ millions)
10/18 Short Interest
Change
Change Shares Shorted
Change MTM
Communication Services
$92,964
($1,318)
($2,242)
$924
Consumer Discretionary
$184,908
($3,942)
($1,408)
($2,534)
Consumer Staples
$57,845
($1,542)
($1,340)
($203)
Energy
$79,885
$1,522
($680)
$2,201
Financials
$171,762
$7,577
($1,012)
$8,588
Health Care
$156,722
$343
$102
$241
Industrials
$139,100
$4,536
$456
$4,080
Information Technology
$297,066
$7,178
($3,330)
$10,508
Materials
$46,163
$313
($435)
$748
Misc. (SPACs)
$13
$2
$2
$0
Real Estate
$41,399
($361)
($357)
($5)
Utilities
$33,100
$437
$158
$279
Grand Total
$1,300,927
$14,743
($10,085)
$24,828
This is broad based short covering which is highlighted when looking at the market by Industry Group. Two-thirds of the 26 Industry Groups saw short covering in October while only one-third saw increased short selling.
Industry Group
10/18 Short Int
Change
Change Shs Shorted
Change MTM
Automobiles & Components
$31,768,864,662
($3,419,075,224)
$172,344,703
($3,591,419,927)
Banks
$57,084,671,712
$1,014,807,657
($628,049,831)
$1,642,857,488
Capital Goods
$86,370,651,468
$3,145,721,592
$484,569,541
$2,661,152,051
Commercial & Professional Services
$22,991,018,442
$426,072,043
($58,747,891)
$484,819,934
Consumer Discretionary Distribution & Retail
$77,336,115,007
($1,762,777,211)
($1,246,805,574)
($515,971,637)
Consumer Durables & Apparel
$25,941,802,835
($83,428,919)
($90,668,350)
$7,239,431
Consumer Services
$49,861,359,229
$1,322,815,440
($243,332,811)
$1,566,148,251
Consumer Staples Distribution & Retail
$19,918,808,519
($73,926,510)
($327,849,849)
$253,923,339
Energy
$79,884,671,469
$1,521,689,551
($679,548,460)
$2,201,238,011
Equity Real Estate Investment Trusts (REITs)
$36,267,361,705
($375,749,028)
($368,917,820)
($6,831,208)
Financial Services
$89,987,659,297
$5,650,828,983
($497,028,049)
$6,147,857,032
Food Beverage & Tobacco
$27,723,110,064
($1,111,566,129)
($892,212,547)
($219,353,582)
Health Care Equipment & Services
$54,307,127,239
($84,034,680)
$787,981,315
($872,015,995)
Household & Personal Products
$10,202,585,932
($356,850,491)
($119,743,505)
($237,106,986)
Insurance
$24,689,320,842
$911,147,637
$113,427,893
$797,719,744
Materials
$46,162,777,803
$312,797,479
($434,789,879)
$747,587,358
Media & Entertainment
$77,442,689,686
($1,296,652,312)
($2,061,769,065)
$765,116,753
Pharmaceuticals Biotech & Life Sciences
$102,414,867,034
$427,099,660
($685,807,734)
$1,112,907,394
Real Estate Management & Development
$5,132,100,272
$14,259,003
$12,261,536
$1,997,467
Semiconductors & Semiconductor Equip
$111,532,354,058
$7,372,676,433
$3,762,556,588
$3,610,119,845
Software & Services
$124,329,525,140
$3,830,746,218
($1,162,573,812)
$4,993,320,030
SPAC
$12,714,799
$2,082,187
$1,968,987
$113,200
Technology Hardware & Equipment
$61,204,410,659
($4,025,493,778)
($5,930,333,398)
$1,904,839,620
Telecommunication Services
$15,521,644,873
($21,541,105)
($180,183,319)
$158,642,214
Transportation
$29,738,406,851
$963,880,060
$29,757,807
$934,122,253
Utilities
$33,100,370,505
$437,127,791
$158,124,227
$279,003,564
Grand Total
$1,300,926,990,101
$14,742,656,345
($10,085,369,296)
$24,828,025,641
Four Industry Groups had short covering of over $1 billion (Consumer Discretionary Distribution & Retail; Media & Entertainment; Software & Services; Technology Hardware & Equipment) while only one Industry Group saw over $1 billion of short selling (Semiconductors & Semiconductor Equipment).
We saw $1.3 billion of short covering in the Consumer Discretionary Distribution& Retail Industry Group with the most short covering occurring in online retailers Amazon.com Inc (AMZN), Alibaba Group ADR (BABA) and Carvana Co (CVNA). There are no stocks with short selling over $100 million.
Consumer Discretionary Distribution & Retail
Ticker
10/18 Short Int
Change
Change Shs Shorted
Change MTM
ROSS STORES INC
ROST US
$670,331,364
$80,370,544
$82,761,589
($2,391,045)
MERCADOLIBRE INC
MELI US
$1,139,593,893
$93,718,089
$79,533,249
$14,184,840
ULTA BEAUTY INC
ULTA US
$927,575,925
$32,456,729
$78,924,162
($46,467,433)
POOL CORP
POOL US
$1,275,261,994
$33,308,093
$54,369,891
($21,061,798)
AMAZON.COM INC
AMZN US
$16,618,478,459
($639,022,115)
($885,385,833)
$246,363,718
ALIBABA GROUP ADR
BABA US
$6,797,362,249
($417,775,497)
($166,891,043)
($250,884,454)
CARVANA CO
CVNA US
$2,691,176,136
$158,169,360
($92,061,624)
$250,230,984
TRACTOR SUPPLY CO
TSCO US
$2,004,220,104
($32,333,826)
($79,164,837)
$46,831,011
OREILLY AUTOMOTIVE
ORLY US
$1,521,084,434
$5,050,250
($73,094,757)
$78,145,007
PINDUODUO INC ADR
PDD US
$4,393,665,404
($429,927,258)
($65,322,190)
($364,605,068)
HOME DEPOT INC
HD US
$4,119,351,835
$41,038,552
($57,597,850)
$98,636,402
FLOOR & DECOR HLDGS
FND US
$1,123,956,373
($206,620,912)
($55,207,068)
($151,413,844)
Total
$77,336,115,007
($1,762,777,211)
($1,246,805,574)
($515,971,637)
In the Media & Entertainment Industry group there was over $2.0 billion of increased short covering with Alphabet Inc A (GOOGL), Reddit Inc (RDDT), Meta Platforms Inc (META) and Comcast Corp (CMCSA) leading the league table. Again no stock in the Industry Group had over $100 million of increased short selling.
Media & Entertainment
Ticker
10/18 Short Int
Change
Change Shs Shorted
Change MTM
OMNICOM GROUP
OMC US
$1,234,252,853
$70,629,523
$58,361,901
$12,267,622
ALPHABET INC A
GOOGL US
$10,818,698,156
($971,023,907)
($798,283,331)
($172,740,576)
REDDIT INC
RDDT US
$60,048,753
($408,923,991)
($515,495,771)
$106,571,780
META PLATFORMS INC
META US
$18,490,133,438
($89,402,235)
($220,202,893)
$130,800,658
COMCAST CORP
CMCSA US
$2,014,980,365
($109,789,904)
($117,928,838)
$8,138,934
FOX CORP A
FOXA US
$909,616,387
($75,536,349)
($78,794,591)
$3,258,242
ALPHABET INC C
GOOG US
$5,890,626,743
($140,477,312)
($63,280,335)
($77,196,977)
WALT DISNEY CO
DIS US
$1,952,812,047
($29,204,161)
($51,663,852)
$22,459,691
Total
$77,442,689,686
($1,296,652,312)
($2,061,769,065)
$765,116,753
The Software and Services Industry Group had the most stocks with over $100 million of increased short covering led by Microsoft Corp (MSFT), ServiceNow Inc (NOW), Palantir Technologies Inc (PLTR), AppLovin Corp (APP), Crowdstrike Holdings Inc (CRWD), Intuit Inc (INTU) and Rubrik Inc (RBRK). Shopify Inc (SHOP CN) and MicroStrategy Inc (MSTR) were the only two stocks in the Industry Group with over $100 million of new short selling.
Software & Services
Ticker
10/18 Short Int
Change
Change Shs Shorted
Change MTM
SHOPIFY INC
SHOP CN
$1,097,744,705
$542,818,763
$524,536,917
$18,281,846
MICROSTRATEGY INC
MSTR US
$6,806,867,504
$1,630,144,273
$179,065,152
$1,451,079,121
AKAMAI TECHNOLOGIES
AKAM US
$1,000,638,842
$139,245,716
$90,437,706
$48,808,010
MONGODB INC
MDB US
$996,787,167
$82,097,143
$64,537,530
$17,559,613
ROPER TECHNOLOGIES INC
ROP US
$679,069,636
$62,843,497
$61,536,713
$1,306,784
INFOSYS TECH ADR
INFY US
$1,799,868,154
$79,335,545
$60,793,657
$18,541,888
MICROSOFT CORP
MSFT US
$23,893,155,590
($1,721,324,558)
($998,666,438)
($722,658,120)
SERVICENOW INC
NOW US
$3,343,668,404
($124,213,445)
($230,298,316)
$106,084,871
PALANTIR TECHNOLOGIES INC
PLTR US
$3,995,316,310
$363,428,825
($199,904,261)
$563,333,086
APPLOVIN CORP
APP US
$2,821,863,342
$132,993,922
($169,156,322)
$302,150,244
CROWDSTRIKE HOLDINGS INC
CRWD US
$2,990,495,764
$160,354,611
($139,137,632)
$299,492,243
INTUIT INC
INTU US
$1,707,664,301
($148,215,934)
($125,174,329)
($23,041,605)
RUBRIK INC
RBRK US
$108,815,227
($66,690,273)
($107,031,973)
$40,341,700
SALESFORCE INC
CRM US
$4,573,978,049
$212,205,285
($94,239,091)
$306,444,376
MARATHON DIGITAL HLDGS INC
MARA US
$1,367,199,052
$138,615,412
($62,866,246)
$201,481,658
PALO ALTO NETWORKS INC
PANW US
$3,539,046,280
$255,852,542
($61,420,393)
$317,272,935
CONSTELLATION SOFTWARE INC
CSU CN
$222,975,766
($64,636,182)
($60,882,839)
($3,753,343)
Total
$124,329,525,140
$3,830,746,218
($1,162,573,812)
$4,993,320,030
Lastly, the Technology Hardware & Equipment had a staggering $5.9 billion of short covering with the lion’s share of short covering occurring in Apple Inc (AAPL). HP Inc (HPQ) also had over $100 million of short covering while Super Micro Computers Inc (SMCI) had over $100 million of new short selling.
Technology Hardware & Equipment
Ticker
10/18 Short Int
Change
Change Shs Shorted
Change MTM
SUPER MICRO COMPUTER INC
SMCI US
$4,658,707,526
$709,073,161
$176,005,314
$533,067,847
ARISTA NETWORKS INC
ANET US
$1,113,588,642
$145,788,431
$99,947,652
$45,840,779
MOTOROLA SOLUTIONS INC
MSI US
$713,415,384
$95,466,843
$60,324,739
$35,142,104
APPLE INC
AAPL US
$27,036,674,800
($5,989,066,973)
($6,272,549,735)
$283,482,762
HP INC
HPQ US
$1,568,907,252
($56,490,325)
($120,382,451)
$63,892,126
Total
$61,204,410,659
($4,025,493,778)
($5,930,333,398)
$1,904,839,620
The only Industry Group with increased short selling was the Semiconductor & Semiconductor Equipment with $3.8 billion of increased short selling in October. Nvidia Corp (NVDA) was by far the most shorted stock in the Industry Group with $3.0 billion of October short selling. Other stocks with significant short selling were ASML Holding NV ADR (ASML), Taiwan Semiconductor ADR (TSM), KLA Corp (KLAC), Applied Materials Inc (AMAT), Astera Labs Inc (ALAB) and Marvell Technologies Inc (MRVL). There were two stocks with over $100 million of short covering, Qualcomm Inc (QCOM) and Broadcom Inc (AVGO).
Semiconductors & Semiconductor Equipment
Ticker
10/18 Short Int
Change
Change Shs Shorted
Change MTM
NVIDIA CORP
NVDA US
$37,609,953,510
$7,117,575,774
$2,959,524,264
$4,158,051,510
ASML HOLDING NV ADR
ASML US
$1,150,580,090
$261,929,797
$379,232,702
($117,302,905)
TAIWAN SEMICONDUCTOR ADR
TSM US
$5,548,145,307
$1,044,440,738
$341,409,524
$703,031,214
KLA CORP
KLAC US
$1,950,516,339
$59,082,641
$293,286,199
($234,203,558)
APPLIED MATERIALS INC
AMAT US
$3,248,488,495
($37,014,631)
$218,117,980
($255,132,611)
ASTERA LABS INC
ALAB US
$752,461,696
$245,662,630
$105,589,134
$140,073,496
MARVELL TECHNOLOGY INC
MRVL US
$1,471,956,896
$221,461,869
$87,430,719
$134,031,150
QUALCOMM INC
QCOM US
$4,227,766,877
($138,386,248)
($160,724,109)
$22,337,861
BROADCOM INC
AVGO US
$11,367,325,373
$325,604,685
($147,429,029)
$473,033,714
TEXAS INSTRUMENTS
TXN US
$3,725,613,543
($254,526,401)
($98,457,593)
($156,068,808)
LAM RESEARCH CORP
LRCX US
$2,251,862,148
($377,988,295)
($95,435,988)
($282,552,307)
NXP SEMICONDUCTORS NV
NXPI US
$1,475,904,283
($116,304,056)
($72,785,508)
($43,518,548)
MICROCHIP TECH INC
MCHP US
$2,008,618,099
($141,264,758)
($62,274,168)
($78,990,590)
INTEL CORP
INTC US
$2,624,634,349
($136,222,367)
($55,020,699)
($81,201,668)
Total
$111,532,354,058
$7,372,676,433
$3,762,556,588
$3,610,119,845
While short sellers were busy trimming some of their exposure in equities, they were building up their ETF & Fund short exposure. ETF & Fund short interest is now $268 billion, a $6.5 billion increase in total short interest in October which is made up of $3.5 billion of increased short selling coupled with a $3.0 billion increase in the mark-to-market value of shares shorted.
ETFs & Funds
Ticker
10/18 Short Int
Change
Change Shs Shorted
Change MTM
SPDR SP 500 ETF
SPY US
$63,884,363,492
$2,974,890,072
$1,825,194,037
$1,149,696,035
ISHS RUSSELL 2000 ETF
IWM US
$19,211,711,477
$1,066,030,038
$675,005,348
$391,024,690
ISHS IBOXX $ INV GRD CORP BOND ETF
LQD US
$5,925,230,988
$226,630,960
$339,109,966
($112,479,006)
PROSHS ULTRAPRO QQQ ETF
TQQQ US
$3,157,945,775
$376,856,704
$294,371,651
$82,485,053
ISHS BROAD USD HY CORP BOND ETF
USHY US
$1,061,932,122
$216,789,583
$222,401,419
($5,611,836)
ISHS S&P 500 ETF
IVV US
$1,993,953,795
$214,018,213
$181,185,588
$32,832,625
ISHS IBOXX $ HY CORP BOND ETF
HYG US
$5,840,372,555
$89,367,979
$125,177,472
($35,809,493)
INVESCO QQQ TRUST ETF
QQQ US
$21,396,271,695
$397,864,284
$122,514,832
$275,349,452
SPDR INDUSTRIAL SELECT SECTOR ETF
XLI US
$3,799,574,446
$217,881,930
$116,598,097
$101,283,833
VANECK SEMICONDUCT ETF
SMH US
$2,179,639,735
$163,087,088
$113,299,722
$49,787,366
GRANITESHS 2x LONG NVDA DAILY ETF
NVDL US
$95,232,277
($917,569,037)
($1,190,306,562)
$272,737,525
ISHS MSCI EAFE ETF
EFA US
$2,345,123,701
($318,043,709)
($264,226,264)
($53,817,445)
ISHS 20 YR TREAS BOND ETF
TLT US
$6,644,207,683
($511,245,851)
($202,707,947)
($308,537,904)
ISHS CHINA LARGE CAP ETF
FXI US
$3,676,856,832
($137,808,529)
($184,621,603)
$46,813,074
DRXN DAILY TSLA BULL 2X SHARES ETF
TSLL US
$111,731,500
($312,593,454)
($183,637,969)
($128,955,485)
ISHS PHLX SEMICONDUCT ETF
SOXX US
$1,798,404,650
($154,017,713)
($143,603,213)
($10,414,500)
SPDR DJIA ETF
DIA US
$2,619,048,540
($81,342,227)
($142,099,743)
$60,757,516
GLOBAL X EQUAL WT CAD BANKS ETF
HBNK CN
$158,301,251
($111,043,073)
($110,486,936)
($556,137)
ISHS MSCI ACWI INDEX ETF
ACWI US
$1,208,626,094
($96,966,186)
($108,979,164)
$12,012,978
ISHS JPM $ EMERG MRKTS BOND ETF
EMB US
$1,497,965,114
($121,400,009)
($100,115,342)
($21,284,667)
Total
$267,992,915,587
$6,504,363,780
$3,513,815,903
$2,990,547,877
Hedge Funds are the primary short sellers in the market as they need to have short exposure to offset their long exposure as they leverage their portfolios. In addition to the need to short in order to satisfy the mechanics of increasing a portfolio’s leverage there is also a need to hedge market and\or sector risk. Shorting ETFs and Funds can fulfill both these needs.
We see increased short selling in the major indexes with the Spider S&P ETF (SPY), IShares Russell 2000 ETF (IWM), ProShares UltraPro QQQ ETF (TQQQ), IShares S&P 500 WTF (IVV) and Invesco QQQ Trust ETF (QQQ) all in the top ten most shorted ETFs\Funds in October. Also in the top ten were three corporate bond ETFs. The IShares IBoxx $ Inv Grade Corp Bond ETF (LQD), IShares Broad USD High Yield Corp Bond ETF (USHY) and IShares IBoxx $ High Yield Corp Biond ETF (HYG) all had over $100 million of new short selling in October.
On the short covering side we saw two leveraged equity ETFs in the top ten with the GraniteShares 2X Long NVDA Daily ETF (NVDL) and Direxion Daily TSLA Bull 2X Shares ETF (TSLL) in the top ten most covered ETFs & Funds. Also in the top ten were four international ETFs, the IShares MSCI EAFE ETF (EFA), IShares China Large Cap ETF (FXI), IShares MSCI ACWI Index ETF (ACWI) and the IShares JPM $ Emerging Markets Bond ETF (EMB).
So far, the vast majority of companies have beat their third quart earnings expectations and the market has historically outperformed in election years. We are seeing a reduction in short exposure by covering in equities and increased short selling hedges against the long side of their portfolio’s in ETFs & Funds – are hedge funds setting themselves up for a pre- and post- election year-end rally?
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