Short sellers who bet on the market going down are getting killed by the booming bull market making new record highs almost every day. They are adding to the buying pressure on the market by racing to cover their short sales to limit the damage happening to them. This is especially true with respect to technology issues like Intel, Apple, Microsoft, Cisco Systems and Advanced Micro Devices, as well as Micron Technology.
There is an important lesson to be learned here. It is dangerous to go short stocks widely owned by investment institutions like mutual funds, pension funds and others in a stock market that are on the verge of runaway optimism. As well, it brings home the point that some of the recent advances in these leading issues were clearly influenced by investors going into the market to cover their short positions and avoid further extreme paper losses in the current melt-up. In the two week period ending December 29, 2017 short sellers bought back 36 million shares of Intel Corporation, 9.8 million shares of Microsoft Corporation, 12.3 million shares of Cisco Systems, 9 million shares of Advanced Micro Devices, and 6.4 million shares of Apple.
Other lesser buybacks include Seagate Technology, eBay Inc, Mattel and Discovery Communications Series A. Short sellers also bought back 3.3 million shares of highflyer Netflix, 5.5 million shares of Gilead Sciences Inc., 3.6 million shares of Akamai, 3.4 million shares Applied Materials, 3.5 million shares of American Airlines, and 3.4 million shares of Mondelez International Class A shares. All these large buybacks were revealed in a Market Data Center release on January 10th.
A particularly dangerous short position is Tesla, the car manufacturer, where the short position is 30.4 million shares of stock or 24.3% of the float, suggesting the high risks involved in buying back the stock in a continuing run-up. Other short positions like Comcast, PepsiCo actually rose during the last two weeks of 2017.
There are several less well known shares where the amount of the short position is a high percentage of the float, or the amount of the company’s equity capitalization that is traded in the market place. That means it is more difficult to find and buy back the shares that have been sold short. They are Synergy Pharmaceuticals, where it would require 14 days of average trading volume to cover the short position, TherapeuticsMD, where it would take 21 trading sessions of average volume to reduce the short position, or MiMedx Group, which would take 30 days to buyback the short position.
Other short positions which rose during this period include GoPro, Groupon, MannKind, Uniti Group, and especially Alibaba, which saw the short interest grow by 6.4 million shares for a 37% increase. This short interest rose during the very trading sessions where Alibaba was gaining in valuation as a favorite Chinese retail stock.
Short positions also rose during the last two weeks of 2017 in the stocks of a wide assortment of companies including Facebook, Hasbro, the toy company Match Group and Immunomedics.
Wherever the short interest rose, it presented a particular problem for some investors who might see their paper losses skyrocket in the instance of a prolonged melt-up s occurred in the 200 point gains for the Dow Jones Industrial Index in recent trading sessions. Investors can well reckon that future run-ups may force traders fearing large losses to buy back shares to cover their short positions.
