The tug-of-war between bulls and bears persist with the three-day market rally coming to an abrupt halt today.
The S&P/ASX 200 Index (Index:^AXJO) (ASX:XJO) reversed all of its morning gains to close down 5.3% on Friday.
It's never easy knowing when to buy beaten down stocks in a fast moving bear market but you can glean some useful hints by looking at what short-sellers are doing.
Short-sellers playbook
For those unfamiliar with the term, short-sellers are traders who borrow stock to sell on-market. It's a bearish bet on a stock as the aim is to buy back the stock at a lower price later to profit from the difference.
Short-sellers tend to be more sophisticated than most retail investors. This doesn't mean they get it right most of the time, but there's little doubt short-sellers are making a killing in this coronavirus-rocked market.
What's notable is that these bears are increasing their attack on a number of notable ASX shares over the week ended 23 March, according to the latest data from ASIC which is always a week old.
Afterpay's aftershock
The one that stood out for me is the Afterpay Ltd (ASX: APT) share price. Short-interest in the stock jumped by a significant 1.37 percentage points over the week to 4.85% of total shares on issue. Short-interest is the percentage of shares in a company that is short-sold.
This could explain the incredible surge in the Afterpay share price over the last few days. The stock jumped from a low of $8.90 on Monday to $18.52 today.
The surge may be more to do with short-covering than investors jumping on what they consider to be a bargain buy. Short-covering refers to short-sellers buying the stock to lock in profits.
Short-covering vs. real buyers
If the jump in the Afterpay share price is due to short-covering, then the rebound is unlikely to be sustainable. We should get a better sense of this in about a week's time.
I like the longer-term fundamentals of Afterpay, but I don't think now is the time to be buying the stock. Unemployment is set to surge in Australia and in the US. The buy now-pay later company is heavily exposed to both markets.
Short-sellers cashing in
Another notable ASX stock to see a big jump in short-interest is outdoor advertising group oOh!Media Ltd (ASX: OML).
Short-interest in the stock increased 1.2 percentage points to 8.46% over the week to Monday, just when the stock went into a voluntary suspension in order to raise capital.
It was a well-timed move by short-sellers. The OML share price crashed 28% to 60.5 cents today when it resumed trading.
In the money
Taking about trading suspensions, short-sellers must have also smelt one coming for Flight Centre Travel Group Ltd (ASX: FLT). The travel agent took the brunt of the COVID-19 pandemic sell-off and short-interest rose 0.76 percentage points to 7.2% in the week to 23 March when Flight Centre went into a trading halt.
The company has since cancelled its dividend and is desperately looking for emergency capital to keep its lights on.
Short-sellers are likely to be on another winning trade with this one.
