Once a week I like to take a look at which shares investors are predicting will fall in value in the near future. I do this by taking a look at which shares short sellers are targeting. Short sellers borrow shares to sell on market in the hope of buying them back at a cheaper price.
The amount of a company’s shares which have been sold by short sellers but not bought back yet is referred to as short interest. I see rising short interest as a bearish indicator. As a result I believe it can be wise for investors to be cautious when investing in companies with high levels of short interest.
The 10 most shorted shares on the ASX as of October 3 according to ASIC are:
- Myer Holdings Ltd (ASX: MYR) has the unwanted honour of being the most shorted share on the ASX with 15.5% of its shares held short. Whilst this is a slight drop from last week, I don’t think it is by any means a sign that sentiment is shifting for the retailer just yet.
- Western Areas Ltd (ASX: WSA) has seen a slight drop in its short interest this week. The nickel producer now has 12.4% of its shares held short. In the last five trading days Western Areas’ share price has dropped over 8%.
- Cover-More Group Ltd (ASX: CVO) now has 10.8% of its shares being shorted, up slightly from 10.5% last week. Despite its shares being down 35% year to date, short sellers appear to think there is still further for them to fall.
- Metcash Limited (ASX: MTS) continues to see its short interest decline. The percentage of the wholesaler and distributor’s shares which are held short dropped sharply to 9.9% from 11.8%.
- Flight Centre Travel Group Ltd (ASX: FLT) may still be a favourite of short sellers, but things could now be changing for the leading travel agent. Short interest has dropped to 9.7% this week, which is the lowest level year to date.
- Alumina Limited (ASX: AWC) has also seen a drop in short interest. This week 9.1% of the miner’s shares are being held short. Sentiment may now be shifting after it settled its dispute with US mining giant Alcoa.
- Bellamy’s Australia Ltd (ASX: BAL) has seen a sharp drop in short interest this week. Just 8.6% of the organic infant formula producer’s shares are being held short, compared to 11.5% last week.
- Monadelphous Group Limited (ASX: MND) is another share which has seen a reduction in short interest. The percentage of shares of this mining services company which have been shorted has now dropped to 8.4%.
- Blackmores Limited (ASX: BKL) is a new addition to the top ten with 8% of its shares being shorted. The manufacturer and distributor of vitamins, minerals, and nutritional supplements saw short interest rise from 7.7% last week.
- Estia Health Ltd (ASX: EHE) has unsurprisingly jumped into the top ten with 8% of its shares held short. With the embattled aged care provider’s share price dropping 11% last week, its short sellers will have been smiling at the weekend.
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Motley Fool contributor James Mickleboro has no position in any stocks mentioned. The Motley Fool Australia owns shares of Bellamy's Australia. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.