ORTEX Monthly Recap for April

ORTEX Perspectives on the S&P 500 for April

All three major averages were positive for the second month running in April. ORTEX Short Interest Data showed most sectors saw a rise in bearish bets last month. Short interest (SI) shares in the Health Care sector fell the most, declining 2.15%, while Financial stocks saw a 10.7% jump in SI shares.

Even with all the major indexes rising in April, short-sellers closed out the month with a profit. In the aggregate, the bears made $2.2 billion last month.

With the majority of companies reporting Q1 earnings in April, there have been some significant changes in forward-looking earnings estimates from Wall Street. Consumer Discretionary stocks saw the largest increase in EPS estimates, up 4.22%, while profitability forecasts for the energy sector fared the worst, down 2.37%.

Insiders hit pause on their buying this month, as Insider buying activity drastically fell in April, down from $2.7 billion in insider purchases in March to just $20.8 million in April, according to ORTEX Insiders Data. Whilst insider buying was small, over 80% of this buying activity was ranked as Medium or High trade significance, meaning this activity was based on conscious decisions, and not just the result of exercise of share options. Insider selling activity also fell in April, from $6.54 billion to $1.88 billion. That translates into an insider buying ratio of 1.09% across all levels of Trade Significance.

On the options front, positive order value for SPY was $3.97 billion, while negative order value for the fund was $6.27 billion. That positive order value ratio of 38.7% represents a slight increase in sentiment among options traders, compared to March’s figure of 34.2%.

Market developments in April

The S&P500 was up +1.46% in April with Communication services +3.56%, Consumer Staples +3.44% and Energy +3.2%. The weakest sectors were Industrials -1.22%, consumer discretionary -0.99% and Materials -0.17%. Financials were the fourth strongest sector at +3% in April despite a continuing theme from March with troubled smaller banks being bought by bigger banks. Regulators seized First Republic Bank (the largest banking failure since the 2008 crisis) and struck a deal to sell the bulk of its operations to JPMorgan Chase, heading off a chaotic collapse that threatened to reignite the recent banking crisis. This followed the collapse of Sillicon Valley bank, Credit Suisse and Signature bank in March.

April saw a majority of companies report Q1 earnings; A clear trend was unexpectedly strong earnings from the Technology giants with Meta, Microsoft and Alphabet surging higher. The banking sector also offered very resilient earnings with most the major banks advancing post numbers.

In March 2023, prices had increased by 5% compared to March 2022 according to the 12-month percentage of change in the consumer price index. The FOMC will announce its latest decision on May 3rd and Consensus expects a 25-bp hike, taking the upper bound of the funds rate to 5.25% and marking the terminal rate of the tightening cycle. With inflation still running at more than double the Fed’s 2% target, there’s abundant reason to ratchet rates up to the higher level – and leave them there for a while. The market doesn’t expect a rate cut until H2 2024. The jump in prices paid in April’s ISM Manufacturing PMI is a final reminder — on the eve of the May 2-3 FOMC meeting — that the Fed has more work to do to sustainably rein in inflation. The new orders sub-index increased to 45.7 from 44.3 in March, helping drive the increase in the headline PMI. Employment, which entered contractionary territory in February, moved back to essentially neutral territory. That gives reason to believe April’s jobs report, due for release May 5, will reflect a still-tight labor market even among goods producers.

April’s Top Performing Trading Signal

On April 13th, ORTEX generated a Type 2 Short Squeeze Trading Signal for CXApp Inc. (Nasdaq:CXAI) based on historical trading activity.

The artificial intelligence-powered enterprise software company soared on the back of a wave of retail investor interest after listing via a SPAC merger with KINS Technology Group Inc. CXAI is another stock to ride the AI wave that’s boosted multiple companies this year, such as Nvidia, which is the best performing stock among mega-caps this year. As a result, the signal returned 681.25% over the prior best holding period of 9 days, making this the best performing ORTEX Trading Signal in April.

Please note that ORTEX Trading Signals are based on historical performance and are not investment advice.

Highest Short Seller Gain and Loss for April

Microsoft (Nasdaq:MSFT) was the biggest loser for short sellers in April, as bears lost $802 million in the stock. Since the beginning of the year, Microsoft has risen 26.4%, with shares of the US tech giant up by 7.2% in March. Despite their losses, bears are mostly unchanged, as ORTEX data shows short interest has remained flat in April at 40.64 million shares, or 0.54% of free float.

The big winner for the bears last month was Tesla (Nasdaq:TSLA). The electric vehicle company’s shares have fallen 17.8% in April after reporting poor earnings and further price cuts of its electric cars, with prices cut half a dozen times already this year, shaving almost a third of the cost of its top selling model in the US. CEO Elon Musk believes greater market share and higher volumes is superior to lower volume and higher margins. Short-sellers reaped $3.85 billion in gains from betting against Tesla, the most profitable short trade in April.

Short Squeeze Candidates with the Highest ORTEX Short Scores

Pessimism among EV stocks persists through April, as EVgo has the highest ORTEX short score on our platform (with at least 3 analysts covering the stock), coming in at 99.3 out of 100. Our ORTEX Short Score uses a multi-factor model that incorporates multiple short-related metrics, with a higher score indicating that the stock is heavily-shorted and has other characteristics that increase the possibility of a short squeeze occurring.