Short-seller interest in Lake Resources shares is falling. Is this a good sign?

The Lake Resources share price hit a new 52-week low of 26 cents on Friday.

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Key points

  • The Lake Resources share price hit a new 52-week low of 26 cents today
  • The short positioning on Lake Resources shares has reduced by 17% in the past fortnight 
  • This may indicate that some pro traders think the Lake Resources share price has fallen as far as it is going to go 

Oh, will the torture of the perennially tumbling Lake Resources N.L. (ASX: LKE) share price ever end?

The ASX lithium share hit a new 52-week low of 26 cents on Friday, down 4.7% at the time of writing and down more than 80% since this death roll began in August 2022.

And yet… is there hope on the horizon?

Why else would the pro traders be closing their short positions on Lake Resources shares?

Short positions 17% lower in a fortnight

The latest short position report from the Australian Securities and Investments Commission (ASIC) reveals 6.39% of Lake Resources shares are shorted.

Shorting is a trading strategy generally only available to the pro traders. It allows them to place a bet that a share price is going to fall.

The thing is, only two weeks ago, 7.7% of Lake Resources shares were shorted. That was enough to put Lake Resources among the top 10 most-shorted ASX shares.

So there's been a change in a short space of time here.

Short positions on the Lake Resources share price have reduced by 17% in just a fortnight. And the company is no longer in the top 10.

Does this mean anything?

One conclusion we may be able to draw is that some pro traders feel Lake Resources shares have fallen as far as they're going to fall, so they're closing their short positions.

If that's true, it doesn't necessarily mean they think the share price is about to go up, by the way.

But right now, Lake Resources investors probably see any sort of pause in the blood-letting as a win.

For the sake of comparison, if we look back a year ago when the Lake Resources share price was around 75 cents, the short position was 9.24%.

So, today's short position of 6.39% is an improvement but it's still high compared to the 499 other stocks in the S&P/ASX All Ordinaries Index (ASX: XAO).

What's dragged the Lake Resources share price to a new low?

Well, June was a month to forget for Lake Resources shareholders with a 40% decline in the share price.

As my Fool colleague James reported, the news that prompted June's cliff fall was a bitterly disappointing update on the Kachi lithium project in Argentina.

Lake Resources revealed it now expects to deliver lithium carbonate production of 25,000tpa in 2027.

This compares to its previous plan of delivering 50,000tpa of lithium carbonate production by next year.

So, that's half the previous production plan, and it's going to be three years late.

It's bitterly disappointing because back in April the company issued a statement saying Kachi was "now on track to move from its pilot phase into commercial-scale development".

But it gets worse.

Production is also going to cost significantly more.

Management now estimates that its phase one plan has a capital cost of US$1.1 billion to US$1.5 billion with a run rate operating cost of US$4.70 to US$7.10 per kilogram.

Whereas the company's pre-feasibility study results for 25,500tpa had a capex of US$544 million and lower costs per kilogram.

Motley Fool contributor Bronwyn Allen has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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