Heavily shorted stocks can rise when the market is tanking because such “risk off” days are “risk off” for short sellers, too.
DreamstimeThe market sold off significantly on Thursday. A few stocks eked out small gains, and eight of the gainers had an interesting common factor: high short interest.
Overall, 55 S&P 500 stocks rose Thursday. That isn’t a lot. It was a brutal day. The S&P dropped 3.5% and the Dow Jones Industrial Average fell 808 points, or 2.8%. The Nasdaq Composite fell hardest, down 5%.
The eight with high short interest that rose were American Airlines (ticker: AAL), Norwegian Cruise Line (NCLH), Carnival (CCL), Royal Caribbean (RCL), Kohl’s (KSS), Ralph Lauren (RL), Under Armour (UAA) and H&R Block (HRB). And bearish short-selling investors have bet big against them.
Heavily shorted stocks can rise when the market is tanking because such “risk off” days are “risk off” for short sellers, too. Taking risk off the table for a short seller means buying stock.
The eight, of course, are just a handful of the 28 stocks with short interest north of 10%. Short interest is the amount of stock borrowed and sold short compared with the shares available for trading. The average short interest ratio for the S&P 500 is between 1% and 3%, depending on how it is calculated—such as weighting the calculation by market capitalization or a simple average.
Almost all of the market’s least-shorted stocks—with short interest ratios below 1% of shares outstanding—fell Thursday. There are about 90 of those. They include Microsoft (MSFT) and Amazon.com (AMZN), which dropped 6.6% and 5.4%, respectively. Two of them eked out small gains: Verizon (VZ) and Capital One FInancial (COF).
The less-shorted names are doing fine year to date, up about 5% on average, making them winners subject to profit-taking. That’s one explanation for Microsoft’s larger-than-average decline. The 90 or so less-shorted stocks fell an average of 3.3% on Thursday.
The heavily shorted stocks, on the other hand, are down about 25% year to date. Thursday’s average drop for them was 1.3%.
It was a day for the beaten-up stocks to shine. That, however, doesn’t mean any investors were happy.
Write to Al Root at allen.root@dowjones.com
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September 04, 2020 at 04:23AM
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55 S&P 500 Stocks Rose on Thursday. For 8, You Can Thank Short Sellers. - Barron's
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