The headquarters of Valeant Pharmaceuticals International Inc., seen in Laval, Quebec November 9 2015.Christinne Muschi/Reuters
It was pretty much all quiet on the Toronto Stock Exchange's Top 20 Largest Short Positions table for April 15, compared with the cut and thrust of previous weeks. But the TSX's other figures, notably those highlighting increases and decreases in short positions, were not so quiet in places.
Valeant Pharmaceuticals
Of particular interest was Valeant Pharmaceuticals International Inc. There was a 1.6-million-share (or 16.2-per-cent) jump in shares sold short during the first two weeks of April, bringing the short position to 11.5 million shares.
This was the first time the company has appeared in the TSX's shorts data since December, 2014. Despite an 84-per-cent tumble in stock price over the past year and a damning report from short-seller Citron Research in October, Valeant did not make it onto the shorts tables until now.
Bearish signals for Valeant have been more evident in the United States. From Sept. 30, 2015, to March 15, 2016, the short position for Valeant's listing on the New York Stock Exchange climbed 62 per cent. More recently, during the two weeks ended March 31, a huge leap of 60 per cent in the short position occurred (no U.S. data have been published yet for April 15).
When the U.S. and Canadian numbers are combined, 27.9 million shares were short over all as of March 31. That left 8.3 per cent of the company's freely traded shares (the float) sold short – a fairly significant reading.
Short-sellers are thus increasing their bets even though negative views on the company have been circulating widely for some time, and Valeant's stock fell into a deep chasm months ago. The bad news may still not be all baked into the price, going by the actions of short-sellers – some of which forecast a drop in price to zero.
It seems the company's business model, based on acquiring other pharmaceutical firms and sharply raising their drug prices, is increasingly coming under question. Indeed, Valeant's aggressive pricing is being attacked from several quarters, including by politicians such as U.S. presidential hopeful Hillary Clinton. With the company's debt load and diminished ability to generate earnings, short-selling activity warns of more pain on the way.
Noteworthy changes among ETFs
Several exchange-traded funds listed on the TSX also surfaced on the latest tables for largest increases and decreases in short positions. They may give some early hints on the direction of equities within certain industries.
The iShares S&P/TSX Global Gold Index ETF saw 1.8 million units sold short in the first two weeks of April. As only 0.5 million units were previously short, this resulted in short interest rising by more than 200 per cent. Gold-mining stocks have had a big run up recently, so some short sellers may be betting on a correction, or hedging long positions on individual gold stocks.
Short interest for the BMO S&P/TSX Equal Weight Banks ETF slid 42 per cent, and plummeted 90 per cent for the BMO Equal Weight U.S. Banks ETF. Short interest for the Horizons BetaPro NYMEX Crude Oil Bull Plus ETF decreased by half. Along with the 3-per-cent drop in the iShares S&P/TSX 60 ETF's short position, the first two weeks in April appear to have extended the trend toward diminished bearish sentiment observed in previous weeks.
Larry MacDonald is an economist, author, financial writer and blogger at larrymacdonald.serveblog.net/home.