Short interest in the domestic market decreased by $35.3 billion, or -3.6%, to $936 billion in the third quarter of 2023. The decrease in short interest was due to a down-trending market in the third quarter (S&P 500 down -3.7%, Nasdaq down -4.1% and Russell 3000 down 3.6%). The $35.3 billion decrease consisted of $53.3 billion in shorted share price decreases with an offsetting $18.0 million of new short selling.

Short exposure continues to be concentrated in several sectors: Information Technology ($174 billion), Consumer Discretionary ($154 billion), Financials ($117 billion) and Health Care ($117 billion). The sector with the largest increase in short exposure was Energy (+$14 billion) while we saw a decrease in short exposure in the Information Technology (-$14 billion), Industrials (-$11 billion) and Health Care (-$6 billion) sectors.

July saw a continuation of the $32 billion of short covering we saw in June with $37.1 billion of new buy-to-covers during the month. Consumer Discretionary led the field by a large margin with $14.0 billion of short covering, followed by Information Technology (-$9.3 billion) and Industrials (-$6.0 billion).

The rest of the third quarter saw increased short selling into a declining market as short sellers looked to back up their winning bets. August had $25.7 billion of new short selling, led by Health Care (+$7.8 billion) and Energy (+$6.21 billion) which was slightly offset with $3.2 billion of short covering in Financials. September saw slightly more short selling, +$26.9 billion, with Consumer Discretionary (+$8.0 billion) and financials (+$5.5 billion) leading the way and only Communication Services with short covering (-$1.1 billion).

Market wide Short Interest as a % of Float decreased in the third quarter with SI % Float decreasing by thirteen basis points to 5.07%. The S3 SI % Float, which includes the synthetic long shares created by every short sale in the denominator, decreased by ten basis points over the quarter, from 4.63% to 4.53%.

The sectors with the largest increases in SI % Float were Energy up 0.53% and Consumer Staples up +0.20%. And the sectors with largest decreases in SI % Float were Communication Services down -0.54% and Financials down -0.41%.

Stocks with over $100 million of short interest with the largest increase in SI % Float were: SunPower Corp. (SPWR) 17.26% to 36.05%; Hawaiian Electric Industries (HE) 1.47% to 14.79%; Sovos Brands Inc (SOVO) 4.67% to 17.57%; Archer Aviation Inc (ACHR) 12.44% to 24.30%; and Mirum Pharmaceuticals Inc (MIRM) 11.67%^ to 22.92%.

Stocks with over $100 million of short interest with the largest decrease in SI % Float were: AMC Entertainment Holdings Inc (AMC) 26.75% to 8.82%; Allogene Therapeutics Inc (ALLO) 49.34% to 31.86%; Lucid Group Inc (LCID) 40.93% to 25.00%; Carvana Co (CVNA) 51.67% to 37.66%; and Symbotic Inc (SYM) 37.41% to 26.46%.

Stock borrow fees decreased in the third quarter, decreasing by twenty-seven basis points to an average of 0.57% fee.

Overall, short sellers paid $1.78 billion in stock borrow fees in the third quarter of 2023 (calculated daily borrow cost using S3’s daily offer rate and daily shares shorted numbers) versus $1.94 billion in the second quarter.

The ten stocks that short sellers had the most conviction and paid the most to short made up 29% of the total borrow cost in the quarter. The stocks with the largest quarterly short financing costs were: AMC (-$238mm), SIRI (-$54mm), NKLA (-$50mm), BYND (-$38mm), KVUE (-$32mm), AI (-$31mm), FSR (-$24mm), CVNA (-$18mm), TSLA (-$17mm), and AAPL (-$15mm).

High stock borrow fees can test the conviction level of short sellers as financing costs can take a large bite out of expected Alpha. The highest stock borrow fees, as of September 29th, for stocks with over $100 million of short interest were:

Stocks with over $100 million of short interest with the largest increase in stock borrow fees were: Fisker Inc (FSR) 11.31% to 22.82% fee; Cassava Sciences Inc (SAVA) 6.56% to 16.57% fee; ChargePoint Holdings Inc (CHPT) 12.06% to 21.07% fee; Stem Inc (STEM) 1.43% to 8.32% fee; and Blackstone Mortgage Trust (BXMT) 0.68% to 6.57% fee.

Stocks with over $100 million of short interest with the largest decrease in stock borrow fees were: AMC Entertainment Holdings Inc (AMC) 144.81% to 2.82% fee; Nikola Corp (NKLA) 147.81% to 36.32% fee; Beyond Meat Inc (BYND) 81.81% to 25.07% fee; Sirius XM Holdings (SIRI) 40.06% to 14.32% fee; and Dutch Bros Inc (BROS) 21.56% to 5.82% fee.

With markets on a downtrend for most of the quarter every sector besides Energy was profitable on the short side.

Short sellers were up +$42.3 billion in third quarter net-of-financing mark-to-market profits, up +4.43%, versus down -$59.3 billion, -6.05%, in the second quarter. With the Russell 3000 down -4.1% for the quarter, short sellers outperformed the market slightly with a +4.4% return.

Nearly two-thirds, 63%, of every dollar shorted was profitable in the third quarter. 57% of all stocks shorted were profitable, 37% were unprofitable and 7% were flat for the quarter.

There were 7,966 shorted equities with positive P\L, producing +$78.2 billion in mark-to-market profits, +12.8%. The five largest short-side winners in the fourth quarter were: AAPL (+$2,320mm +11.8%), MSFT (+$922mm +7.4%), TSLA (+$729mm +3.3%), JNJ (+$633mm +12.2%) and DXCM (+$560mm +33.1%).

There were 5,260 shorted equities with negative P\L, producing -$36.0 billion in mark-to-market losses, -10.1%. The five largest short-side losers in the fourth quarter were: PDD (-$823mm -33.3%), CVNA (-$688mm -45.9%), RIVN (-$665mm -32.7%), GOOGL (-$618mm -6.11%) and CHTR (-$611mm -17.5%).

Although the market has continued its downward trend in October, with the Russell 3000 down -4.5%, we are seeing a deceleration of additional short selling across the U.S. market. While total short interest has dipped to $871 billion on October 27, the $69 billion decrease in the value of shorted shares has only precipitated $4 billion of new short selling – short sellers are not building up their positions in these profitable trades. This may be an indication that short sellers are looking for a year-end rally and are not willing to increase their exposure in the short-side of the market.

Our Blacklight SaaS platform and Black App provides an up-to-date view of short selling and short covering on an equity, sector, index, or country-wide basis allowing investors\traders to better manage their existing long and short positions.

The Black MaP and Black App products provide a total view of long and short positioning in the market with a breakdown between Active\Passive long investors, 24 Fund type entities, over 50k securities globally across 108 countries and data from 58 regulatory exchanges.