Short-sellers are stepping up their attack on ASX shares over the past month even as the S&P/ASX 200 Index (Index:^AXJO) recovers from the coronavirus fallout.
The total number of shares short-sold jumped by 3% over the past month and is close to 4% more than at the start of this calendar year.
It’s usually a good idea to keep an eye on what these bearish traders are doing as they tend to be more sophisticated than the average investor.
Short-sellers are those who borrow a stock to sell on-market with the aim of buying it back at a lower price later to profit from the difference.
Shorting the BNPL sector
One of the interesting things short-sellers appear to be betting against are the rivals to Afterpay Ltd (ASX: APT) even as they stepped back from shorting the buy now pay later (BNPL) industry leader.
Those who shorted Afterpay are probably nursing big losses as the stock hit a record high on Monday.
This might have convinced them to go after its weaker rivals instead as the sector, which is linked to discretionary spending, is under a cloud. The ones most likely to use such services are more likely to be impacted by job losses.
Targeting the weaker players
Based on the latest ASIC short-selling data that runs to May 5 (the data is always a week old), short-interest in Zip Co Ltd (ASX: Z1P) and FlexiGroup Limited (ASX: FXL) jumped.
Zip Co’s short-interest, which is the percentage of Zip shares in the hands of short-sellers, rose 165 basis points (1.65 percentage points) to 8.9%.
Flexigroup isn’t far behind. The proportion of its shares being shorted increased 136 basis points to 1.9%.
It looks like Zip Co is the more popular short target with close to 10% of its shares being shorted. That’s a relatively high percentage.
Biggest increase in shorts
However, these shares aren’t the flavour of the month as short-sellers have been more aggressively increasing their bearish bets against other ASX stocks.
Top of the list is gold miner KIRKLAND/IDR UNRESTR (ASX: KLA) with short-interest in the stock surging 758 basis points over the month from nothing. Short-sellers may be using it as a hedge against the rallying gold price.
Retailers are a moving target
Second on the list is embattled department store group Myer Holdings Ltd (ASX: MYR). Short-interest in the stock jumped 437 basis points to just over 14%.
I suspect the sudden and sharp rally in Myer shares on Monday may be due to short-covering where short-sellers rush to buy back the stock to close their position.
The reopening of Myer stores and the easing of social restrictions is triggering a re-rating in ASX retail stocks.
Holding a large short position in Myer must be causing pain with the stock surging 44% over the past month.
The short trade in the sector could become a widow maker if short-sellers don’t go after the right candidates.
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More reading
- 3 top-notch ASX shares on my May watchlist
- Is this ASX healthcare share about to soar?
- Where to invest $10,000 in ASX 200 shares immediately
- Leading brokers name 3 ASX shares to sell today
- ASX 200 sinks 1.3%: Big four banks drag ASX lower & Altium issues sales warning
Brendon Lau has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of ZIPCOLTD FPO. The Motley Fool Australia owns shares of AFTERPAY T FPO. The Motley Fool Australia has recommended FlexiGroup Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
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