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SOFTWARE ROUT AND REBOUND SHAKE UP SHORT-SELLING TRENDS

Recent gyrations in the software sector drove a wild ride for short sellers as well as longs.

On the price side, the iShares Expanded Tech-Software sector ETF IGV.N fell about 37% from its September record closing high to its April 10 close. Then the selloff paused to give way to an on-again, off-again rally that really heated up between May 28 and June 1 before taking a pause.

Short sellers are investors who make bearish bets by borrowing shares and then selling them with the expectation that the shares will fall so they can buy the shares back at the lower price, return them to the lender and pocket the difference.

On the share borrowing side - which is generally an indicator of short-selling trends - volatility was also the name of the game, according to the latest data from EquiLend, an electronic trading platform for securities lending.

On March 9, about 97% of IGV shares that were available for lending were being borrowed. The borrowing utilization came down to 28% by April 7, but then crept up to 86% by May 13. Then utilization started to fall again, dropping to 59% on June 1, at the peak of the ETF's most recent rally.

But while the ETF pulled back in price in the last two sessions, stock borrowing continued to drop as utilization fell to 49% by the close on June 2. This implies that the rally caused short-sellers to lose their nerve.

"The price has rallied fairly consistently from April 10, peaking on June 1. First we saw shorts piling into the price increase but as the rally continued we've seen the shorts closing positions and losing conviction," said Nancy Allen, managing director and head of data & insights at EquiLend.

Some market watchers questioned whether at least some of the recent rally in the ETF was due to shorts rushing to cover their bets - known as a short squeeze.

This is what Allen said: "I wouldn't call this a squeeze event. Could it have helped push the price up? Potentially."

Here is EquiLend's snapshot comparing the IGV's price vs borrowing demand:

(Sinéad Carew)

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