Macro Wrap – Short Interest Barometer, $TSLA, $FSLR, $GMCR, $HLF

by Enis May 28, 2013 8:10 am • Commentary

Dan mentioned the very strong outperformance of high short interest names with concentrated holders a few weeks ago in his Morning Word.  In that post, he highlighted a few names:

Which leads me back to the aforementioned stocks, which all have short interest north of 27%, all of which have a significant concentration of shares outstanding among a handful of holders and all have had eye-popping gains ytd (data below from Bloomberg):

TSLA FSLR GMCR HLF
% Ownership
 Top 5 Holders 55% 60% 54% 59%
Short Interest 46% 30% 27% 38%
YTD Gains 63% 40% 41% 30%

That combination in a market where hedge fund managers need to justify their highs fees in a period of under-performance, makes for an explosive cocktail for those looking to cause short squeezes and garner out-sized returns, even if only in a few small positions.

The latest short interest data shows some declines in short interest for a number of such stocks, though they’re still much higher than I would expect given how far these names have run.  I went through a large variety of such names that are up more than 25% in the past 2 months.

First, TSLA:

TSLA Short Interest, Courtesy of Bloomberg
TSLA Short Interest, Courtesy of Bloomberg

Short interest has fallen materially in the past couple months, but it still stands at around 32% of outstanding float, and is much higher than it was in 2011, quite incredible given that the stock has more than doubled.  The fact that it remains this high makes me think that a lot of the short interest might not be outright short stock players (most of whom must have been stopped out ages ago), but shorts against other long delta positions (like option market makers).

Next, FSLR:

FSLR Short Interest, Courtesy of Bloomberg
FSLR Short Interest, Courtesy of Bloomberg

FSLR short interest declined mostly at the end of last year and the start of this year.  It has not moved much in the past few months as FSLR as doubled, indicating a cleaner positioning picture than most of 2012.

GMCR has doubled over the last 6 months, but short interest has not moved much in 2013 in this stock either:

GMCR Short Interest, Courtesy of Bloomberg
GMCR Short Interest, Courtesy of Bloomberg

It is still higher than it was for much of 2012, indicating a continued desire to bet against the company despite its recent strength.

HLF has been the classic short squeeze play, as Icahn has essentially hinted at such a strategy, and it has worked well for him in the past month.  But Ackman has remained steadfastly short, perhaps dangerously so:

HLF Short Interest, Courtesy of Bloomberg
HLF Short Interest, Courtesy of Bloomberg

A scary chart of positioning for a name that rallied 50% from mid-April to mid-May.

There are a couple names where short interest has declined to new 2 year lows while the stocks have rallied, indicating potential exhaustion in the moves higher.  Both are electronic retailers.

First, GME:

GME Short Interest, Courtesy of Bloomberg
GME Short Interest, Courtesy of Bloomberg

Gamestop was down every single day last week, about 20% in total for the week.  This is after rallying from 25 to 40 in just 6 weeks, with the chart above indicating that a good bit of that buying was short covering.  Positioning is now cleaner, and the stock moved lower on heavy volume last week.

Best Buy has also seen a large decrease in short interest in 2013, a period in which the stock has more than doubled:

BBY Short Interest, Courtesy of Bloomberg
BBY Short Interest, Courtesy of Bloomberg

The stock is flat in the past month, in contrast to most other high short interest names.  That’s likely because BBY is no longer high short interest, with short interest that now stands at just 8% of the float.  This is one stock where future short covering represents much less future buying power than the others.

Not all shorts are created equal.  Watching how positioning changes is particularly important in smaller cap, high flying names like these.  Continued high short interest in some of these stocks that have doubled (namely, TSLA, GMCR, and FSLR) is likely still a source of support going forward.