Live Markets: Highly-shorted crypto stocks in spotlight -S3 Partners

Digital Holdings

17/11/2022 15:45

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      Main U.S. indexes fall, but off lows: FANGs, chips now
positive
    

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      All S&P 500 sectors red: utilities weakest group
    

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      Euro STOXX 600 index down ~0.4%
    

        * 
      Dollar up; bitcoin ~flat; gold down; crude off >2%
    

        * 
      U.S. 10-Year Treasury yield rises to ~3.79%
    

  
       Nov 17 - Welcome to the home for real-time coverage of
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    HIGHLY-SHORTED CRYPTO STOCKS IN SPOTLIGHT -S3 PARTNERS (1045
EST/1545 GMT)
    Highly-shorted cryptocurrency and blockchain-related stocks
have taken a knocking since last week after FTX's bankruptcy
sent shockwaves across the digital assets industry, providing
fresh gains to bearish investors' portfolio.
    The top eight most shorted crypto stocks (refer to table
below) have 14.8% of their free float shares in short positions,
almost three times more shorted than the average U.S. stock,
notes Ihor Dusaniwsky, S3 Partners' Managing Director of
predictive analytics.
    Short sellers are paying almost nine times as much financing
costs to short these stocks, he adds.
    Block  SQ.N  and Coinbase Global  COIN.O  had the largest
amount of short covering four weeks ago, but over the last week
they saw a complete reversal in sentiment as FTX turmoil
unfolded and had almost $93 million of new short selling,
Dusaniwsky noted.
    The path forward for these stocks, however, is not very
clear.
    "With the underlying crypto currency market in temporarily
disarray, price fluctuations in these stocks will see shorting
activity see-saw between shorting and covering as momentum
trading overtakes fundamental investing in these stocks,"
Dusaniwsky writes.
    Shorting these crypto stocks has been a very profitable
trade in 2022, fetching bearish investors gains of 90% for the
year, with 9% gains in November alone, far outperforming both
the S&P 500  .SPX  and Nasdaq  .IXIC  indexes. 
    Crypto stocks and ETFs offer exposure to digital assets on a
regulated exchange so retail and institutional investors don't
have to worry about securely storing their crypto and eluding
hacks and heists if they were to dabble in the spot market.
    Here's S3 Partners' list of crypto stocks with highest short
interest as of Nov. 15:
 Name                          Short          Short
                               Interest % of  Interest
                               free float     
 Block Inc  SQ.N               5.1%           $1.91 bln
 Coinbase Global Inc  COIN.O   18%            $1.58 bln
                                              
 Microstrategy Inc  MSTR.O     34.1%          $557.5 mln
 Robinhood Markets Inc         8.2%           $360.7 mln
  HOOD.O                                      
 Marathon Digital Holdings     30.7%          $333.1 mln
 Inc  MARA.O                                  
 Riot Blockchain Inc  RIOT.O   16.4%          $133.7 mln
 Silvergate Capital Corp       11.2%          $119.0 mln
  SI.N                                        
 Bakkt Holdings Inc  BKKT.N    21.2%          $25.2 mln
 Total Crypto Short Interest:  14.8%          $5.01 bln
    (Medha Singh)
    *****
    WILL POWELL STICK TO VOLCKER'S DOCTRINE, KEEPING AT IT?
(1020 EST/1520 GMT)
    How tough is Federal Reserve Chairman Jerome Powell? Will he
cave when the market howls as higher interest rates cause the
pain he's forecast is the big question haunting Wall Street. 
    The market has been skeptical about the Fed's willingness to
keep aggressively raising rates as a potential recession looms,
impatiently waiting for the inevitable "Powell pivot."
    Looking for answers, Michael Arone, the chief investment
strategist at State Street Global Advisors' U.S. SPDR business,
reached out to Richard Fisher, the former Dallas Fed President
who for many years sat next to Powell at policy meetings.   
    Arone learned from Fisher that on Powell's desk is a copy of
former Fed Chairman Paul Volcker's book, "Keeping At It: The
Quest for Sound Money and Government."
    Arone says that according to Fisher, "Powell knows the way
to go down in the history books is to slay the inflation dragon
and he's hell bent on doing it." 
    Powell's reappointment as Fed chair a year ago bolstered his
confidence and there hasn't been a dissenting vote against each
75 basis-point hike since June, Arone says in "What I Learned
About the Fed's Fight Against Inflation from Richard Fisher."
    It seems clear that a Powell pivot won't be coming any time
soon, given Powell's personal resolve to defeat inflation and
his strong support in Washington and a unified Federal Open
Market Committee, Arone said.
    The old adage "Don't fight the Fed" applies whether the
central bank is easing or tightening, he said.  
    "It's also important to recognize that the Fed's terminal
rate is a real rate. And since a real rate is the goal, the Fed
has a lot more work to do," he said.
    (Herbert Lash)
    *****
    U.S. STOCKS DUCK AS A FED HAWK CIRCLES (1000 EST/1500 GMT)
    Wall Street's main indexes are lower early on Thursday as
mixed economic data and hawkish comments from a Federal Reserve
official spurred concerns that the U.S. central bank would not
tone down its aggressive stance on interest rate hikes.
    St. Louis Federal Reserve President James Bullard said that
rate hikes so far "have had only limited effects on observed
inflation," and even under a "generous" analysis of monetary
policy the Federal Reserve needs to continue raising interest
rates probably by at least another full percentage point.
    A number of other Fed officials are scheduled to speak today
including Federal Reserve Bank of Atlanta President Raphael
Bostic, Federal Reserve Board Governor Michelle Bowmanon,
Federal Reserve Bank of Cleveland President Loretta Mester, and
Federal Reserve Bank of Minneapolis President Neel Kashkari. It
remains to be seen if they will make any market moving comments.
    The Nasdaq  .IXIC  is leading declines among the main
indexes, and economically-sensitive transports  .DJT  are being
hit harder.
    All S&P 500  .SPX  sectors are red with communications
services  .SPLRCL , and materials  .SPLRCM  taking the biggest
hits. Staples  .SPLRCS  are posting the smallest decline.
    With the weakness, the S&P 500 is back down to test support
at its 100-day moving average, which is now around 3,908.
    Here is a snapshot of where markets stood shortly before
1000 EST:
    (Terence Gabriel)
    *****
    CRUDE OIL FUTURES: DESTINED TO SLICK AND SLIDE LOWER? (0900
EST/1400 GMT)
    Oil extended declines on Thursday as concerns over
geopolitical tensions eased and as rising numbers of COVID-19
cases in China added to demand worries in the world's largest
crude importer.
    Earlier this year, on March 7th and 8th, NYMEX crude futures
 CLc1  topped at $130.50 on an intraday basis, and at $123.70,
on a daily closing basis. At that time, they appeared extended
above their 200-week moving average (WMA), and at risk for a
reversal:
    In early March, and again in early June, on a weekly closing
basis, CLc1 topped at 1.98x its 200-WMA. This was just shy of
its 2008 peak at 2.07x and its 1990 top at 2.08x.
    Subsequently, in late September, crude fell to as low as
$76.25, while weekly disparity hit 1.25. 
    On Thursday, the futures, down about 2% at around $84.00,
are trading at 1.30x their 200-WMA, which now resides around
$64.70.
    Since 1990, and prior to 2022, there have been seven 200-WMA
disparity peaks, 1.38x or higher. In six of those instances,
crude ultimately retreated to, and then below, its 200-WMA
(sub-1.00 disparity). It was only subsequent to the 2005 peak,
that crude bottomed in early 2007 at 1.04x the 200-week MA. Not
quite 1.00, but pretty close.
    Thus, traders remain focused on whether the 200-WMA will
continue to work its magic as a powerful magnet.
    Crude could, of course, mark time and churn, allowing the
moving average to ultimately catch up (the moving average is
currently rising 15-20 cents per week). But that would at least
suggest a period of more stable prices.
    A longer-term return to the disparity support line from
1987, which has coincided with major crude lows over the past
20+ years, could suggest potential for a massive decline to the
low-$20.00 area.
    Crude has nearby hurdles in the $93.75/$97.66 area. The
resistance line from its early-March high is now around $113.00.
    A weekly disparity close above the 2.07/2.08 highs (crude
roughly $135+), however, can be a game-changer on the charts,
and instead suggest a major upside breakout is underway.    
    (Terence Gabriel)
    *****
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 (Terence Gabriel is a Reuters market analyst. The views
expressed are his own)