Square One Analytics

Shorts on the Defensive

admin — Thu, 13 Aug 2009 21:02:22 +0000

As the S&P 500 rose by 11.3% from July 10^th through July 28^th short interest fell sharply – on the New York Stock Exchange by 10.3% and on the NASDAQ by 5.1%.

As covering intensified, investors concentrated new short positions in companies with well-know bearish stories. On the short side, this is a relatively defensive position which is the equivalent of a long investor owning 3M or Coca-Cola. Companies: PALM, VPRT, MTG, RHT, DECK and DTV.

Short Interest as % of Shares Outstanding
(Sector averages in gray.)

PALM INC (PALM)

VISTAPRINT LTD (VPRT)

MGIC INVESTMENT CORP (MTG)

RED HAT INC (RHT)

DECKERS OUTDOOR CORP (DECK)

DIRECTV GROUP INC (DTV)

Coal

admin — Thu, 13 Aug 2009 21:01:39 +0000

Short investors believe that coal will take a beating in the Obama administration, perhaps for environmental reasons. Coal producers or heavy coal users – some of the largest new short positions – included ANR, FCL and MIR.

Short Interest as % of Shares Outstanding

ALPHA NATURAL RESOURCES INC (ARN)

FOUNDATION COAL HOLDINGS INC (FCL)

MIRANT CORP (MIR)

China

admin — Thu, 13 Aug 2009 19:27:55 +0000

Short investors are also skeptical of rapidly advancing stock prices in China. More air moving into the bubble could lead to its bursting. New positions focused on two large Internet companies – SINA and SOHU – that have collapsing revenue growth and weakening fundamentals.

	SINA	SOHU
Short Interest Score^©
Short Interest (as % of shares outstanding)
Revenue Growth (Trailing 12 months)

Sectors on the Move

admin — Tue, 28 Jul 2009 19:17:55 +0000

A simple review of those industry sectors which experienced the greatest average increase in short interest between June 25th and July 10th .

We cannot show the top 12 sectors with short-covering for this latest period, since there were only four with any overall decrease in average short interest.

Comparison with the previous review, for July 25th data, shows that Construction Materials, Leisure Equipment & Products. and Pharmaceuticals appear in the top 12 new shorting for a second time; Beverages appears in the top 12 for covering for the second time; Tobacco moves from being amongst the top industries for short-covering June 12-25th, to being the second highest for new-shorting in this period.

(The numbers in parentheses show the number of stocks with in each industry sector. SISO = Short Interest as % of Shares Outstanding.)

Health Care

admin — Tue, 28 Jul 2009 19:13:22 +0000

With the recent attention being given to Health Care, we used the Square One system to browse and analyze short interest trends in that sector.

We noticed that in the Health Care Equipment & Services sub-sector, some extreme increases in short interest have taken place in micro-cap stocks.

Asking the system to rank stocks in that sector by new shorting (as a percentage of shares outstanding) we saw that in the top 10 stocks, only one had a market capitalization of over $250M. (Although such micro-cap stocks make up roughly a third of the total industry group.)

Comparison of micro-cap shorting in other sectors shows this as exceptional, but a glance at the SISO charts for the top ten stocks speak for themselves:-

(The short interest as a % of shares outstanding is plotted in red against time, with two time-points per month, from May 26th to July 10th. The bars in gray show the average for the stocks sub-industry.)

American Dental Partners
(ADPI)

Rockwell Med. Technologies
(RMTI)

Bioscrip Inc.
(BIOS)

Cutera Inc.
(CUTR)

America Service Group Inc.
(ASGR)

Allied Healthcare Intl. Inc.
(AHCI)

Rochester Medical Corp.
(ROCM)

Align Technology Inc.
(ALGN)

Utah Medical Products Inc.
(UTMD)

Electro-Optical Sciences Inc.
(MELA)

REITs

admin — Tue, 28 Jul 2009 19:12:37 +0000

Shorting of Real Investment Trusts has picked up across the board in July – with the exception of Mortgage REITs. Overall REIT short interest is now at a level proportionately higher to the overall market than at this time last year.

Sectors on the Move

admin — Tue, 14 Jul 2009 19:07:48 +0000

A simple review of those industry sectors which experienced the greatest average increase in short interest between June 12th and June 25th – the most up-to-date data available.

(The numbers in parentheses show the number of stocks with in each industry sector. SISO = Short Interest as % of Shares Outstanding.)

And, those industry sectors which saw the greatest short-covering, on average.

Building Suppliers

admin — Tue, 14 Jul 2009 15:59:22 +0000

Surprising, some building supply stocks have held up well in spite of the downturn in residential and commercial construction.

That might be due to a delayed impact, with several large suppliers showing heavy new shorting, including Regal-Beloit (RBC, manufactures HVAC equipment and auto transmissions, among other products), USG Corp (USG, makes building materials such as drywall) and Universal Forest Products (UFPI, lumber). Both RBC and USG are heavily levered.

	RBC	USG
Shorting Activity Warning^TM
Debt Levels
Liquidity
Free Cash Flow Distress Score
Revenue Growth

Specialty Retailers

admin — Tue, 14 Jul 2009 15:50:18 +0000

As with Building Suppliers, several retail outlets have held up well even though retail sales overall have declined sharply. Short-sellers now believe that the fortunes of these companies will soon share a similar experience with the rest of the retail sector: Dress Barn (DBRN), Joseph A. Bank (JOSB), Children’s Place (PLCE), and HHGregg (HGG).

Short Activity Warning ^TM
DBRN		Our proprietary Shorting Activity Warning score gives an indication of significant changes in Short Interest in a stock. High scores tend to correlate with future, long-term under-performance of a stock’s price.
JOSB
PLCE
HGG

Automotive Retail

admin — Tue, 14 Jul 2009 15:40:02 +0000

Wall Street has been enthusiastic about the upcoming aging of American cars. With rising unemployment, high consumer debt, and auto sales in the tank, analysts expect consumers to buy more used cars and drive their current cars longer, which will require more independent repair.

New shorting activity is warning that this is probably an exaggerated theme – consumers can just as easily delay buying used cars as well as making repairs to their clunkers. In particular see Munro Muffler Brake (MNRO), Group 1 Automotive (GPI), O’Reilly Automotive (ORLY), America’s Car Mart (CRMT), and Sonic Automotive (SAH).

	Short Interest as % of Shares Outstanding
MNRO		Stock Sector
GPI
ORLY
CRMT
SAH