BlackBerry appeared on the TSX’s Largest Net Increases in Short Positions table for Nov. 30, but add U.S. and Canadian data together and a different picture emerges.DADO RUVIC/Reuters
The Toronto Stock Exchange has released its tables that highlight notable short-selling positions as of the close of trading on Nov. 30. Many investors will scan this table to see whether there were any changes from short-selling positions in prior tables, which are published twice monthly.
Often, there will be some major changes that point to a substantive shift in bearish sentiment among short-sellers (which lead share price changes, according to some academic studies). But such was not the case over the two weeks from Nov. 15 to Nov. 30. There were just not that many increases or decreases of the sit-up-and-take-notice kind during this interval.
However, some interesting moves did occur on U.S. exchanges in the shares of three interlisted companies: Teck Resources Ltd., Valeant Pharmaceuticals International Inc. and BlackBerry Ltd. It might be useful to take a look at these cases, if only to highlight the importance of analyzing Canadian and U.S. short-selling data in combination.
Teck Resources
The Class B shares of Teck Resources Ltd. made the TSX's Largest Net Increases in Short Positions table for Nov. 30, with a 10-per-cent escalation during the previous two weeks. Despite this uptick, the increase for 2015 has been somewhat modest: Over the eight months to Nov. 30, the short position has risen by an unspectacular 30 per cent.
The upward trajectory is a lot steeper once U.S. short sales are factored in. Over the eight months to Nov. 30, short interest in Canada and the United States reached nearly 90 million (estimated), for a cumulative appreciation greater than 120 per cent. Thus, bearish sentiment is actually becoming fairly strong.
Valeant Pharmaceuticals
Notable by its absence on the TSX short-selling tables is Valeant Pharmaceuticals. Its stock collapsed more than 50 per cent recently when a research report by a professional short-seller claimed financial results were inflated. Given such a momentous drop, one might have expected to see a prior runup in the company's short position in the TSX tables.
But Valeant never appeared. The action was instead mostly on U.S. exchanges, where short interest climbed to 170 per cent in the period of June 30 to Oct. 15 leading up to the report's release. Short-selling has continued to mount since the crash – it stands approximately 230 per cent higher as of Nov. 30 (compared with June 30).
BlackBerry
BlackBerry appeared on the TSX's Largest Net Increases in Short Positions table for Nov. 30. About 21.1 million shares were sold short, a 14-per-cent jump from Nov. 15. This continues the string of increases since April 30 and brings the cumulative gain to nearly 600 per cent – a big upward move that suggests bearish sentiment has become quite substantial.
A different picture emerges when short interest on U.S. exchanges is included. Adding U.S. and Canadian data together, the overall short position on Nov. 30 tallies to about 92.0 million (estimated), no more than 10 per cent above April 30. Sentiment hasn't turned overly bearish, after all.
The above cases of Teck Resources, Valeant and BlackBerry underscore the importance of supplementing an analysis of TSX short-selling data with U.S. data. In some cases, most of the short sales of interlisted Canadians stocks are in the United States, so leaving them out can result in quite misleading conclusions. There may also be offsetting trends on either side of the border that render the overall trend less volatile; similarly, mutually reinforcing trends in either country can make the overall trend look more dramatic.
Larry MacDonald is an economist, author and financial writer. His website is at larrymacdonald.serveblog.net/home.