Short-sellers are stepping up their attack on ASX shares over the past month even as the S&P/ASX 200 Index (Index:^AXJO) recovers from the coronavirus fallout.
The total number of shares short-sold jumped by 3% over the past month and is close to 4% more than at the start of this calendar year.
It's usually a good idea to keep an eye on what these bearish traders are doing as they tend to be more sophisticated than the average investor.
Short-sellers are those who borrow a stock to sell on-market with the aim of buying it back at a lower price later to profit from the difference.
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Shorting the BNPL sector
One of the interesting things short-sellers appear to be betting against are the rivals to Afterpay Ltd (ASX: APT) even as they stepped back from shorting the buy now pay later (BNPL) industry leader.
Those who shorted Afterpay are probably nursing big losses as the stock hit a record high on Monday.
This might have convinced them to go after its weaker rivals instead as the sector, which is linked to discretionary spending, is under a cloud. The ones most likely to use such services are more likely to be impacted by job losses.
Targeting the weaker players
Based on the latest ASIC short-selling data that runs to May 5 (the data is always a week old), short-interest in Zip Co Ltd (ASX: Z1P) and FlexiGroup Limited (ASX: FXL) jumped.
Zip Co's short-interest, which is the percentage of Zip shares in the hands of short-sellers, rose 165 basis points (1.65 percentage points) to 8.9%.
Flexigroup isn't far behind. The proportion of its shares being shorted increased 136 basis points to 1.9%.
It looks like Zip Co is the more popular short target with close to 10% of its shares being shorted. That's a relatively high percentage.
Biggest increase in shorts
However, these shares aren't the flavour of the month as short-sellers have been more aggressively increasing their bearish bets against other ASX stocks.
Top of the list is gold miner KIRKLAND/IDR UNRESTR (ASX: KLA) with short-interest in the stock surging 758 basis points over the month from nothing. Short-sellers may be using it as a hedge against the rallying gold price.
Retailers are a moving target
Second on the list is embattled department store group Myer Holdings Ltd (ASX: MYR). Short-interest in the stock jumped 437 basis points to just over 14%.
I suspect the sudden and sharp rally in Myer shares on Monday may be due to short-covering where short-sellers rush to buy back the stock to close their position.
The reopening of Myer stores and the easing of social restrictions is triggering a re-rating in ASX retail stocks.
Holding a large short position in Myer must be causing pain with the stock surging 44% over the past month.
The short trade in the sector could become a widow maker if short-sellers don't go after the right candidates.
