Short Interest in U.S. and Canada Continues to Decline
Author:
Ihor Dusaniwsky
Managing Director of Predictive Analytics, S3 Partners
Matthew Unterman
Director of Predictive Analytics, S3 Partners
Short interest in U.S. and Canadian markets has been declining consistently in 2022, regardless of market direction. In the first two quarters of the year, with the Russell 3000 down 21.7%, we saw total short interest decline by $171 billion even though short sellers were actively adding to their positions with $150 billion of additional short selling. The added short selling did not cover even half of the $322 billion of mark-to-market decline in the price of shares shorted. Short sellers did not replenish their short exposure as stock prices declined and they earned $309 million of mark-to-market profits in the first six months of the year, a +29.5% return on an average short interest of $1.05 billion. It seems short sellers were sensing that the table was getting cold and reduced their exposure in anticipation of the dice not rolling in their favor.
In the third quarter, the Russell 3000 is up +4.6% but short interest continues its decline. The mark-to-market increase of the price of shares shorted increased by $49 billion but that was more than offset with $61 billion of third quarter short covering. Overall, short interest in the third quarter declined by $12 billion as short sellers incurred $59 billion of mark-to-market losses, a -6.0% return on an average short position of $986 billion. While short sellers did not back up their positions while they were winning, they were actively removing chips from the table when the rolls were coming up Craps.
Quarterly Change in Short Interest: U.S. & Canada
Quarter
Starting Short Interest
Ending Short Interest
Change Short Interest
Change Shares Shorted
Change Mark-to-Market
12/31/21 - 3/31/22
$1,114,014,082,069
$1,075,569,985,752
($38,444,096,317)
$58,833,278,892
($97,277,375,209)
3/31/22 - 6/30/22
$1,075,569,985,752
$942,790,559,385
($132,779,426,367)
$91,640,422,776
($224,419,849,143)
6/30/22 –
9-13-22
$942,790,559,385
$931,202,442,706
($11,588,116,679)
($60,641,179,823)
$49,053,063,144
A large portion of the third quarter’s short covering occurred in September when the market resumed its upward trend. $28 billion of the total $61 billion of third quarter short covering occurred in September as overall short interest declined by $29 billion in the quarter. There were no sectors that had an increase in short selling and the sectors with the largest amount of short covering were: Industrials $8.0 billion, Consumer Discretionary $4.4 billion, Health Care $3.9 billion and Information technology $3.5 billion.
Change in Short Interest and Shares Shorted by Sector
Sector
8/31/2022 Short Interest
9/13/2022 Short Interest
Change Short Interest
Change Shares Shorted
Change Mark-to-Market
Communication Services
$70,327,593,586
$67,365,328,709
($2,962,264,877)
($1,344,808,584)
($1,617,456,293)
Consumer Discretionary
$147,544,287,736
$144,930,118,915
($2,614,168,821)
($4,385,529,160)
$1,771,360,339
Consumer Staples
$42,051,511,612
$40,243,993,298
($1,807,518,314)
($1,041,377,668)
($766,140,646)
Energy
$76,597,960,083
$74,376,323,485
($2,221,636,598)
($1,330,906,801)
($890,729,797)
Financials
$110,645,084,173
$110,088,041,940
($557,042,233)
($1,637,747,853)
$1,080,705,620
Health Care
$122,929,394,135
$121,110,737,839
($1,818,656,296)
($3,898,541,995)
$2,079,885,699
Industrials
$103,693,500,743
$95,345,838,369
($8,347,662,374)
($8,022,025,370)
($325,637,004)
Information Technology
$182,192,437,830
$174,462,923,546
($7,729,514,284)
($3,534,382,398)
($4,195,131,886)
Materials
$39,346,861,329
$38,684,644,117
($662,217,212)
($1,107,257,715)
$445,040,503
Misc. (SPAC)
$480,691,273
$471,151,069
($9,540,204)
($7,494,147)
($2,046,057)
Real Estate
$39,376,510,566
$39,028,723,904
($347,786,662)
($534,502,187)
$186,715,525
Utilities
$25,429,165,954
$25,094,617,514
($334,548,440)
($874,506,549)
$539,958,109
Grand Total
$960,614,999,019
$931,202,442,706
($29,412,556,313)
($27,719,080,426)
($1,693,475,887)
Diving deeper into September data we see that short covering was widespread across most industries with 91.4% of the seventy industries seeing net buy-to-covers.
There were only six industries with increased short selling, and only two with over $100 thousand of increased short selling. The industries with the largest amount of short selling, and the largest moves by company are as follows.
Industries with the Most Short Selling
Industry
8-31-22 Short Interest
9-13-22 Short Interest
Change Short Interest
Change Shares Shorted
Change Mark-to-Market
Banks
$44,136,634,140
$45,057,193,489
$920,559,349
$315,719,639
$604,839,710
Diversified Telecommunication Services
$10,381,029,329
$10,344,331,186
($36,698,143)
$276,852,080
($313,550,223)
Banks short selling and short covering:
CIBC (CM CN) +$197 million
Bank of Nova Scotia (BNS US) +$178 million
Toronto-Dominion Bank (TD CN) +$121 million
Bank of America (BAC US) -$112 million
JPMorgan Chase (JPM US) -$93 million
Diversified Telecommunication Services short selling and short covering:
BCE Inc (BCE CN) +$176 million
BCE Inc (BCE US) +$126 million
Verizon Communications (VX US) +$70 million
Lumen Technologies (LUMN US) -$85 million
64 out of 70 industries had increased short covering in September, five industries had over $1 billion in buy-to-covers. The industries with the largest amount of short covering, and the largest moves by company, are:
Industries with the Most Short Covering
Industry
8-31-22 Short Interest
9-13-22 Short Interest
Change Short Interest
Change Shares Shorted
Change Mark-to-Market
Industrial Conglomerates
$15,016,065,655
$8,286,464,679
($6,729,600,976)
($6,275,102,405)
($454,498,571)
Biotechnology
$43,431,450,163
$42,410,923,664
($1,020,526,499)
($1,588,855,292)
$568,328,793
Semiconductors & Semi Equipment
$41,209,411,752
$38,362,437,183
($2,846,974,569)
($1,181,820,994)
($1,665,153,575)
Oil Gas & Consumable Fuels
$71,687,656,177
$69,652,514,212
($2,035,141,965)
($1,114,751,514)
($920,390,451)
Automobiles
$28,555,448,858
$28,778,865,953
$223,417,095
($1,088,712,079)
$1,312,129,174
Industrial Conglomerates short covering and short selling
3M Company (MMM US) -$6.27 billion (arbitrage trading due to spin-off)
Honeywell Intl (HON US) -$23 million
General Electric (GE US +$30 million
Biotechnology short covering and short selling:
Regeneron Pharmaceuticals (REGN US) -$108 million
Mirati Therapeutics (MRTX US) -$90 million
AbbVie Inc (ABBV US) -$78 million
BioCryst Pharmaceuticals (BCRX US) +$20 million
Semiconductor & Semiconductor Equipment short covering and short selling:
NVIDIA (NVDA US) -$177 million
ON Semiconductor (ON US) -$148 million
Analog Devices (ADI US) -$134 million
KLA Corp (KLAC US) -$131 million
Micron Technology (MU US) -$91 million
Advanced Micro Devices (AMD US) -$84 million
Broadcom (AVGO US) +$94 million
Oil Gas & Consumable Fuels short covering and short selling:
Chevron (CVX US) -$245 million
Exxon Mobil (XOM US) -$181 million
Occidental Petroleum (OXY US) -$177 million
Devon Energy (DVN US) -$73 million
Magellan Midstream Partners (MMP US) -$70 million
TC Energy (TRP US) +$135 million
Automobiles short covering and short selling:
Tesla (TSLA US) -$1.14 billion
General Motors (GM US) -$35 million
Rivian Automotive (RIVN US) -$22 million
NIO Inc (NIO US) +$55 million
The Information Technology sector continues to be the most shorted sector in U.S. - Canada by a wide margin, followed by Consumer Discretionary, Health Care, Financials, and Industrials.
Tech Remains the Most Shorted Sector
With the U.S. market reversing recent gains and the possibility of a longer-term downward trend in stock prices increasing with every government data release we may see a reversal of the recent short covering. If short sellers get active once again, we expect the Consumer Discretionary and Information Technology sectors, which saw the largest amount of buy-co-covers in the third quarter, to see the largest increase of new short selling.
Sub-industries and stocks in these two sectors that saw the largest amount of short covering and could once again be in the crosshairs of short sellers would be:
Auto Manufacturers
TSLA, RIVN, GM & LCID
Hotels, resorts & Cruise Lines
ABNB, CCL, MAR & EXPE
Restaurants
DPZ, QSR, WING & MCD
Application Software
ADBE, CDNS, DDOG & FIVN
Data Processing & Outsourced Services
SQ, MA, PYPL & PAYX
Semiconductor Equipment
KLAC, ENTG, ASML & MKSI
Semiconductors
INTC, NVDA, ON & QCOM