1. Here are the companies most targeted by short sellers in April.
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2. Several activist short sellers launched public campaigns in April.
* Spruce Point Capital targeted Montreal engineering firm WSP Global Inc. (WSP-T), as reported in the Globe and Mail.
Noted activist short seller Carson Block of Muddy Waters Capital has acquired more than 10 per cent of the shares of Mayfair Gold Corp. (MFG-X) and is now calling for its board to be · reconstituted. In response, the company has scheduled an annual and special meeting for June 5. Mr. Block also bought more shares this month, as reported by insider transactions advisory, INK Research.
* Night Market Research published a sell report on a Vancouver developer of artificial intelligence, Verses AI Inc.
3. Recent academic research continues to support short sellers.
In their April 22 paper, Short Interest and Earnings Predictability, professors at the State University of New York and National Taiwan University, find there “is strong evidence that short interest consistently provides incremental predictive power for firms’ future earnings.”
Short sellers are sometimes accused of running “short and distort” campaigns. However, in their March 25, 2024, paper, Under the Hood of Activist Fraud Campaigns, academics at the University of California and the University of North Carolina conclude there is no evidence of systematic manipulation when activist short sellers publish sell reports under their own names.
4. Here are the Canadian stocks most susceptible to short squeezes.
5. Shopify Inc. (SHOP-T) has a pronounced downtrend in short interest over the year ending in April.
6. Short seller trades may anticipate earnings surprises
A number of academic studies over the years have claimed (with some exceptions) that short sellers on average anticipate quarterly earnings surprises. With companies now starting to report their earnings for the first quarter of 2024, it may be worthwhile to identify several companies with large changes in short positions just ahead of their earnings reports. Let us run this as a test for now and check back next month to see what happens.
If a short position is significantly shrinking that may be a good omen for shareholders; if it is ripping higher, not so much. Note that academic studies only conclude that short sellers get it right on average, not every time. Furthermore, the samples used in the studies are large; a smaller sample as shown below could yield returns noticeably above or below the average tendency.
It can be seen on the table that First Quantum’s (FM-T) quarterly earnings report has already passed. The company is included on the table because academics also point out that short sellers often anticipate news releases. First Quantum is fighting to regain its copper mine in Panama, and short sellers may be expecting some bad news to be mixed in with the good.
Note: S3 Partners was the data source for short sales. It was selected because Canada has a lot of companies interlisted in the United States, and other data sources do not sum currency-adjusted short positions across countries. Regardless of data source, short positions may reflect hedging/arbitrage positions in part or whole — so, may not always be entirely bearish bets.