These 3 Stocks Are Seeing Short-Selling Activity Rise

SunGard's Astec Analytics provides intraday short-selling market data via securities lending analytics. In a recent note sent to customers, the firm shared a “roundup of some of the hottest stocks from a securities lending perspective.”

Below is a look at the top stocks in the Americas region (from a security lending perspective), according to SunGard's Karl Loomes.

Chesapeake Energy Corporation CHK is the firm’s top pick for the Americas, as it has been suffering the consequences of low commodity prices – driven by record production volumes. In turn, the company’s stock tumbled more than 19 percent over June. Borrow volumes, “taken as a proxy for short interest,” surged almost 50 percent since June 1st, suggesting that short sellers were anticipating the bad news. Borrowing costs are now moving to reflect the increased demand, so it will be interesting to see where this energy company goes next.

Second in line is Shake Shack Inc SHAK, which has consistently cost over 100 percent to borrow since June. Given that “a share is considered a ‘hot stock’ in securities lending parlance when it breaks say 50bp or 1% cost to borrow - or in other words half to one cent a year to borrow $1 worth,” Shake Shack is one of the hottest stocks in the market.

After peaking above $90 in May (roughly twice the February IPO price), the stock now trades under $60 – at the time of the writing of the report. While the recent price drops will have mitigated the potential for a short squeeze, “the fact that very high borrow costs remain suggests that the desire to short this stock remains very high, in turn suggesting the short sellers believe that this share remains over-valued, even at $60,” Loomes explains.

Third in Astec’s list is Rockwell Medical Inc RMTI, a small-cap biopharmaceutical company that has seen its stock surge about 60 percent year-to-date, hitting a five-year high. However, Loomes warns, “as with many pharmaceutical firms, there is a great risk of becoming a reversal stock - up one day, down the next - due to their almost digital reliance on individual drug approvals.”

Rockwell seems to be on the right path for the time being; “short interest although bumping up around 20% from May into June has fallen back as short positions are closed off.” Levels remain at almost double the 12-month low, so still a reasonably large contingent of traders is anticipating a fall. Only time will tell who has called this trade accurately.