Shorts appear to up their bets against housing via Equitable Group

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Short-sellers are back targetting Canadian housing this earnings season. Mortgage and consumer lender Equitable Group (EQB) has jumped into the top 10 list of the most shorted stocks in Canada (as a % of float). As of the April 30th IIROC short report, EQB was sitting at the number seven spot. However, as short-sellers have increased their positions, likely as a bet against Canadian housing, our INK short signal suggests a potential short-squeeze situation. Based on our calculations, EQB short-sellers are betting against relatively strong insider commitment at the firm.

Equitable has a mostly sunny INK Edge insider commitment outlook placing it in the top 30% of all stocks ranked. Generally, we believe short-sellers will have better luck against stocks that do not have strong insider commitment rankings. That said, the signal is by no means perfect. Short-sellers are likely betting that EQB will disappoint with its Q1 results (expected after the close May 9th) and hope it will suffer a fate similar to prime mortgage lender First National (Sunny; FN) which tumbled 5.7% after it reported Q1 results May 1st.

Shorts also upped their bets against North American Construction Group (NOA) ahead of their April 30th earnings results. That bet paid off as the company disappointed and shares fell 3.1% May 1st and have continued to fall. NOA has a relatively weak insider commitment (bottom 30% of all stocks ranked). This, combined with the relatively large short position gives NOA a bearish short signal with the potential for more downside ahead.

Top 10 Canadian Stocks Shorted as of April 30, 2019*
    Stock Shares Short %Float Change INK Signal
1 POU Paramount Resources 7,974,911 28.27% 1.33% Squeeze
2 HLF High Liner Foods 3,658,799 16.37% 0.83% Bearish
3 GWO Great-West Lifeco 27,892,563 12.79% -0.01% Squeeze
4 CJT Cargojet 1,378,610 11.80% 0.29% Bearish
5 SSL Sandstorm Gold 17,878,946 10.32% 0.11% Bearish
6 ACQ AutoCanada 2,716,419 10.16% 0.03% Bearish
7 EQB Equitable Group 1,100,848 9.86% 1.60% Squeeze
8 NOA North American Construction 2,403,387 9.79% 1.23% Bearish
9 CHW Chesswood Group 797,820 8.88% 0.03% Squeeze
10 LB Laurentian Bank of Canada 3,722,025 8.83% 0.19% Bearish

*Stocks trading over $1

As we look back on our list of the Top 10 shorted Canadian stocks as of April 15th, we note that that Village Farms International (VFF) has now fallen out of the top 10. Often, a stock will be shorted ahead of a financing as hedge, but now that the April VFF financing is out of the way, some of the shorts have departed with the short position down 5.17% from where it was in the previous report. While out of the top 10, the short signal at VFF remains bearish because the VFF short position remains relatively large (5.59% of the stock's float), while the INK Edge insider commitment outlook for VFF is cloudy (in the bottom 30% of all stocks ranked).

Savaria (SIS) has also left the list after its financing closed in April, but short interest also remains high at 6.22% of its float. In contrast to VFF, however, Savaria has the potential for a short-squeeze setup as short-sellers are betting against a stock with relatively high insider commitment. Savaria has a sunny ranking on the basis of insider commitment (top 10% of all stocks ranked).

This post first appeared on INKResearch.com.

 

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