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Finance professor Matthew Ringgenberg and his team have developed a short-sale index that is “the strongest known predictor of aggregate stock returns,” according to their research published in the Journal of Financial Economics.

The index collects short sales across securities and calculates the percentage of outstanding shares sold short at the market level.

The version based on raw data shows an uptick in short interest to 4.6 per cent around the time COVID-19 first ramped up, back in March. The index has since settled back to 4.3 per cent, as of November.

By comparison, it trended upward to 9 per cent just prior to the big stock-market crash of 2008. These results pertain to the U.S. stock market but should still be of interest to Canadian investors given the correlation between U.S. and Canadian stocks.

Data source: Professor Matthew Ringgenberg

The other two versions of the index show how far short interest deviates from the mean, after adjusting out secular trends tied to extraneous factors, such as growth in the hedge-fund sector. To this end, the first version linearly detrends the short sales data and the second detrends with a quadratic cube function (i.e. raised to the third power). They provide mixed readings, with the first trending below its mean (not bearish) and the second trending moderately above (bearish).

So, it’s a wash.

“Overall, the data shows that short sellers are not really active right now,” Professor Ringgenberg told the Globe and Mail. “They haven’t completely exited the market, but they are not acting as bearish as they were in 2008.”

Data source: Professor Matthew RinggenbergThe Globe and Mail

Canadian stocks targeted by short sellers

Five companies have short interest exceeding $900 million and 5 per cent of float, as of Dec. 21.

Companies with large short positions (more than $900-million and greater than 5% of float)

COMPANYTICKERSHORT SALES ($-MIL)SHORT INTEREST AS % OF FLOAT% INCREASE IN SHORT POSITION OVER MONTH
CIBCCM-T$2,798.75.6%13.1%
Canopy Growth Corp.WEED-T$1,473.919.3%1.6%
Great-West LifecoGWO-T$919.111.4%6.1%
Pembina Pipeline Corp.PPL-T$918.25.1%12.5%
Loblaw Companies Ltd.L-T$913.38.3%7.2%

Source: S3 Partners

Includes short sales of Canadian stocks in the U.S.; as of Dec. 21.

Westshore Terminals Investment Corp., a coal exporting terminal on the B.C. coast, now has the second highest percentage of float short (the highest, Alpha Pro Tech, has been covered in previous updates). Coal prices are rallying but Westshore’s union recently issued a strike notice and its main customer, Teck Resources Ltd., is building their own terminal.

Companies with more than 12% of float sold short

COMPANYTICKERSHORT INTEREST AS % OF FLOAT% CHANGE IN SHORT POSITION OVER MONTH
Alpha Pro Tech Ltd.APT-A30.1%-17.0%
Westshore Terminals Corp.WTE-T23.7%3.4%
First Majestic Silver Corp.FR-T23.6%9.7%
VBI Vaccines Inc.VBIV-Q23.2%48.6%
Cronos GroupCRON-T23.1%2.9%
Village Farms InternationalVFF-T22.5%102.9%
Tilray Inc.TLRY-Q20.9%6.6%
Canopy Growth CorpWEED-T19.3%1.6%
Aurora Cannabis Inc.ACB-T19.3%-0.5%
Lions Gate Entertainment-ALGF-A-N14.5%-3.7%
Canada Goose Hldgs.GOOS-T14.4%-24.3%
Greenpower Motor Co Inc.GPV-T14.0%163.4%
Tucows Inc.TC-T13.9%-1.5%
Aphria Inc.APHA-T12.2%37.3%

Source: S3 Partners

Includes short sales of Canadian stocks in the U.S.; as of Dec. 21.

The banks dominate the top 5 companies with the largest dollar increases in short sales.

The 5 companies with the largest increases in short sales over the month

COMPANYTICKERINCREASE IN SHORT SALES ($-MIL)% CHANGE IN SHORT POSITION OVER MONTH
Bank of Nova ScotiaBNS-T$729.423.2%
Toronto-Dominion BankTD-T$699.416.4%
Bank of MontrealBMO-T$338.019.0%
CIBCCM-T$325.213.1%
Shopify Inc.SHOP-T$314.115.5%

Source: S3 Partners

Includes short sales of Canadian stocks in the U.S.; as of Dec. 21.

Gold mining companies dominate the top 5 companies having the largest dollar decreases in short interest over the month ending Dec. 21.

The 5 companies with the largest decrease in short sales over the month

COMPANYTICKERDECREASE IN SHORT SALES ($-MIL)% CHANGE IN SHORT POSITION OVER MONTH
Barrick Gold Corp.ABX-T-$281.0-12.7%
Brookfield Asset Mgt.BAM-A-T-$262.6-20.7%
Wheaton Precious MetalsWPM-T-$190.2-20.8%
Agnico Eagle MinesAEM-T-$176.5-50.5%
Franco-Nevada Corp.FNV-T-$157.8-28.2%

Source: S3 Partners

Includes short sales of Canadian stocks in the U.S.; as of Dec. 21.

Cannabis stocks

S3 Partners recently reported on short interest in cannabis stocks. They find that bearish stances are considerably diminished in 2020. Sector short interest dropped to 17.0 per cent from 24.2 per cent of float; loan rates tumbled to 5 per cent from 30.4 per cent. Canopy Growth Corp., Aphria Inc. and Tilray Inc. had the biggest declines in bearish sentiment.

Short interest in cannabis stocks has considerably diminished in 2020

COMPANYTICKERShort interest as % of float on Dec. 16Short interest as % of float on Jan. 1Stock borrow fee on Dec. 16Stock borrow fee on Jan 1
Canopy Growth CorpWEED-T19.3%26.4%1.8%51.9%
Aurora Cannabis IncACB-T19.4%19.2%12.5%31.2%
Cronos Group IncCRON-T22.6%37.2%1.3%7.5%
Aphria IncAPHA-T11.3%15.7%1.4%36.5%
Tilray IncTLRY-Q20.4%47.6%14.8%59.0%
Organigram Holdings IncOGI-T11.4%9.0%7.8%10.2%
Curaleaf Holdings IncCURA-T0.9%0.9%7.2%9.8%
HEXO CorpHEXO-T7.3%16.8%21.9%61.7%
Neptune Wellness Solutions IncNEPT-T12.3%15.2%40.8%20.7%
Sundial Growers IncSNDL-Q10.6%5.1%21.4%26.0%
Total Sector17.0%24.2%5.0%30.4%

Source: S3 Partners

Includes short sales in U.S. (converted to CAD)

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