The monthly update on TSX short sales tracks not only short selling activity but also recent academic research on short selling. Interestingly, one recent peer-reviewed study challenges the widely held view that the 3,000-per-cent spike in GameStop Corp.’s (GME-N) stock during the month of January 2021 was a short squeeze engineered by retail traders on Reddit forums.
In Did Retail Traders Take Over Wall Street?, a professor and post-doctoral student from Washington University in St. Louis use “tick-by-tick data of stock and options trading” to argue that “this remarkable surge came mainly from overnight trading, driven mainly by institutional orders rather than those from retail investors.” So it was the Whales, not the Roaring Kitties ...
Now for the update on TSX short sales. Based on data compiled by S3 Partners for the 30 days to Oct. 24, the most shorted company once again on the 20 most shorted companies table is Canada Goose Holdings Inc. (GOOS-T), with 30 per cent of its float sold short (see past monthly updates for commentary).
Meanwhile, the cryptocurrency ETFs have dropped off the table and several high-yield plays have jumped on: iShares S&P/TSX Capped Utilities ETF (XUT-T), Dream Office REIT (D.UN-T) and Morguard REIT (MRT.UN-T). For the REITs, there may also be concerns about vacancy rates and other issues for office towers and commercial real estate.
Making its first appearance on the table is Lithium Americas Argentina Corp. (LAAC-T). This company was just formed in the last month though a corporate reorganization of Lithium Americas Corp. (LAC-T), a company that has appeared frequently on the table before.
Oil-and-gas pipeline giant TC Energy Corp. (TRP-T) had a high yield (8 per cent). But is it safe? Over the past 30 days, the increase in the company’s short position ($1.3-billion) was the largest of all companies. And having 14.7 per cent of float short is unusually high for such a large company.
An interesting development on the Largest one-month increases in short positions table is the appearance of bond ETFs, iShares Canadian Bond Index ETF (XBB-T) and iShares Canadian Long-Term Bond ETF (XLB-T). The percentage increases in their short positions were also the largest. It looks like short sellers are betting on bond yields continuing to rise (i.e. bond prices to decline).
It is customary every three months or so for the short sales update to review activity in Canadian stocks by activist short sellers, as tracked by global data-analytics firm Breakout Point. For the quarter ending Sept. 30, only one Canadian company was targeted by an activist short seller: Patriot Battery Metals Inc. (PMET-X), which is listed on the TSX Venture Exchange and explores for minerals related to batteries, such as lithium. The short seller, Night Market Research, initiated their position in early July.
Appendix: Methodological notes
1) Some short positions may reflect, in part or whole, hedging/arbitrage positions – so they are not entirely bearish bets; if bearish sentiment is extreme, it can sometimes trigger a short squeeze that sends the stock price higher.
2) Short positions in inter-listed stocks were summed across exchanges in Canadian dollars.
3) When an investor purchases stock that was sold by a short seller, it creates a synthetic long position; if these long positions are not included in the float count, the percentage-of-float-short metric can be overstated – however, most of the time, the magnitude is not significant.
4) The percentage of float short for ETFs is impacted by the mechanism for creating/redeeming units, which results in almost daily changes in the number of units issued. The percentage of float short for ETFs may thus be more volatile than for stocks.
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