Why are short sellers shifting into ASX blue chips and out of lithium losers?

It was only last week that we discussed when ASX short sellers would stop targeting ASX lithium shares.

Lithium shares have been at the top of the ASX’s most short-sold stocks lists for months now.

Previously lofty valuations, combined with a price crash in the lithium commodity itself prompted armies of short investors to take out positions in some of the ASX’s most prominent lithium stocks since the middle of last year.

The likes of Pilbara Minerals Ltd (ASX: PLS), Core Lithium Ltd (ASX: CXO) and Sayona Mining Ltd (ASX: SYA) have frequently found themselves on the ASX’s most short-sold shares list in recent months.

But perhaps this is changing.

Short sellers walk away from lithium stocks

Every week, my Fool colleague James takes a look at this data and tells us what the 10 most shorted shares each week are.

A month ago, there were three ASX lithium shares that made the cut.

Pilbara was on top, with 20.6% of its shares held in a short position.

Core Lithium was the third stock, with 12.7%

And Sayona was just behind that, with 11.7% of its shares held against it.

But this week, we have a different picture. Pilbara is still taking out the top spot. But Core Lithium has slipped to the seventh most-shorted position. And Sayona dropped out of the top ten entirely.

So there’s a clear move away from ASX lithium shares amongst short sellers.

As today’s report shows, other mining companies like Genesis Minerals Ltd (ASX: GMD) are attracting more short interest. But so too are shares like Flight Centre Travel Group Ltd (ASX: FLT) and IDP Education Ltd (ASX: IEL).

ASIC data shows that this short interest seems to be migrating to some other diverse corners of the ASX.

Short seller interest in blue chips like Commonwealth Bank of Australia (ASX: CBA), BHP Group Ltd (ASX: BHP) and Rio Tinto Ltd (ASX: RIO) has increased in recent weeks, even as the interest in lithium stocks like Core Lithium and Sayona Mining has waned.

Why are ASX 200 blue chips getting targeted?

Well, there could be at least two major factors at play here.

Firstly, as we touched on last week, short sellers may be deciding that the well is running dry when it comes to shorting ASX lithium shares. It’s only possible to make money from short selling if the shorted share in question experiences a major share price loss over a set period.

With a stock like Core Lithium already down almost 88% from its all-time highs in 2022, some shorters may feel like they are running out of runway. Especially with signs that lithium prices are beginning to recover.

Secondly, the entire ASX has been on a tear over the past few months. We’ve recently seen the ASX 200 at record highs, and the big four bank shares, in particular, have had a huge surge in valuation.

Miners like BHP and Rio are often hit hard in a stock market pullback, thanks to their cyclical, commodity-based business models.

So perhaps investors are betting that the ASX 200, after rallying almost 14% since November, is due for a pullback, and are shorting the biggest ASX 200 shares as a result.

Only time will tell if this proves to be a wise move.

The post Why are short sellers shifting into ASX blue chips and out of lithium losers? appeared first on The Motley Fool Australia.

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More reading

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• Leading brokers name 3 ASX shares to buy today
• 3 ASX dividend shares to buy with ~5% yields for an income boost
• These are the 10 most shorted ASX shares
• Down 19% this year! Is now the moment to buy Core Lithium stock?

Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Idp Education. The Motley Fool Australia has recommended Flight Centre Travel Group and Idp Education. 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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