MENU

Why short-sellers are stepping up their attack on these three ASX stocks

Short-sellers have been upping their bearish bets on a handful of stocks over the past week – a sign that these stocks could come under increasing pressure in the near-term.

It’s often useful to watch what short-sellers are doing to get a sense of the near-term price direction of certain shares as these traders are usually more sophisticated than the average retail investor.

Short-selling involves borrowing a stock to sell on market with the aim of buying it back later at a lower price.

There’s little evidence that short-selling is correlated to the longer-term fundamentals of a stock but this group of traders can, and often do, influence share prices over the short-term.

Short-selling favourites

This is why investors in datacentre operator Nextdc Ltd (ASX: NXT) should be on alert as the stock is the “soup du-jour” on short-sellers’ menus! It’s the most targeting stock as the amount of its shares short-sold increased by 3.4 percentage points to 13.8% of total shares on issue over the week to March 8 (the latest data from ASIC is always a week old). That’s a big amount.

This is the biggest increase of any stock on the ASX and could partly explain why NEXTDC’s share price has come under pressure recently.

There have been ongoing concerns that NEXTDC will struggle to fully rent out capacity at its new datacentres due to increasing competition.

Meanwhile, the second most target stock is debt ledger purchaser Credit Corp Group Limited (ASX: CCP).

The increase in shares being short-sold (called short-interest) jumped by nearly 3.4 percentage points to 9.2% and short-sellers may be upping their bearish bets on the stock on the belief that it’s overpriced after CCP’s share price surged nearly 20% since the start of the year.

Our slowing economy certainly bodes well for Credit Corp’s business but some experts worry that the stock is overvalued given the fiercely competitive landscape.

Nickel miner Western Areas Ltd (ASX: WSA) is another hot shot-selling favourite in third spot. Short-interest in the stock jumped 2.7 percentage points to 8% over the week and its poorly received profit results last month isn’t helping.

The WSA share price has fallen around 7% over the past month.

Stocks with the biggest drop in short-sellers

On the flipside, short-sellers appear to be locking in profits or throwing in the towel for some of the most shorted stocks on the ASX.

These include embattled grocery distributor Metcash Limited (MTS), graphite miner Syrah Resources Ltd (ASX: SYR) and troubled department store Myer Holdings Ltd (ASX: MYR).

This may indicate that the market thinks that the worst is behind these companies.

Top 3 ASX Blue Chips To Buy For 2019

For many, blue chip stocks mean stability, profitability and regular dividends, often fully franked...

But knowing which blue chips to buy, and when, can be fraught with danger.

The Motley Fool’s in-house analyst team has poured over thousands of hours worth of proprietary research to bring you the names of "The Motley Fool’s Top 3 Blue Chip Stocks for 2019."

Each one pays a fully franked dividend. The names of these Top 3 ASX Blue Chips are included in this specially prepared free report. But you will have to hurry. Depending on demand – and how quickly the share prices of these companies move – we may be forced to remove this report.

Click here to claim your free report.

Motley Fool contributor Brendon Lau has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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 Scott Phillips.

The 5 mining stocks we’re recommending in 2019…

For decades, Australian mining companies have minted money for individual investors like you and me. But if you believe the pundits and talking heads on TV, those days are long gone. Finito! Behind us forever…

We say nothing could be further from the truth. To earn the really massive returns, you’ve got to fish where others aren’t fishing—and the mining sector could be primed for a resurgence. That’s why top Motley Fool analysts just revealed their exciting new research on 5 ASX miners they believe could help you profit in 2019 and beyond…

Including:

The best way we see to play the global zinc shortage… Our #1 favourite large-cap miner (hint: it’s not BHP)… one early-stage gold miner we think could hit the motherlode… Plus two more surprising companies you probably haven’t heard of yet!

For free access to our brand-new research, simply click here or the link below. But be warned, this research is available free for a limited time only, and we reserve the right to withdraw it at any time.

Click here for your FREE report!