Australian Investment Blog

Short sellers load up ahead of reporting season - this will create volatility

Shorts position increased significantly to 1.24 per cent of the S&P/ASX 200 market capitalisation between July 18 and July 25. In terms of actual dollar value of shorts, this represents an increase of almost $1.4 billion. This increase is a noticeably large increase and it appears short sellers are positioning for more negative surprises in the coming reporting season, QBE would certainly add to their confidence. Two-thirds of the companies in the S&P/ASX 200 experienced additional short selling over the week; this can only be interpreted as increasing negativity from Sophisticated Investors. Firstly lets clarify what Short selling is:The sale of a security that is not owned by the seller, or that the seller has borrowed. Short selling is motivated by the belief that a security's price will decline, enabling it to be bought back at a lower price to make a profit.When I consider this billion dollar trade I can see it paying off. However, there will be sharp moves for individual stocks in both directions created by these leveraged short positions, of course depending if companies report well, or badly.