ORTEX Monthly Recap for July

ORTEX Perspectives on the S&P 500 for July

Markets kept up their strong performance in 2023 by ending the first month of Q2 in the green, defying worries about an overheated market. The S&P 500 jumped 3.1% to notch its fifth consecutive positive month for the first time since its seven-month streak ending August 2021. The tech-heavy Nasdaq Composite gained about 4.1% and registered its fifth straight winning month for the first time since April 2021. The blue-chip Dow added about 3.4%. Last week, the index posted a 13-day advance that matched its longest streak of gains going back to 1987. Wall Street has looked past concerns about an earnings recession as economic data bolstered hopes on a soft landing despite the Federal Reserve’s rate hikes. ORTEX Short Interest Data showed a mixed bag for bearish bets last month, with 7 of 11 sectors seeing a fall in short interest. Short interest (SI) shares in the Consumer Staples sector rose the most, up 6.17%, while real estate stocks saw the largest fall as short interest shares decreased by 8.71%.

Short-sellers had another poor month in July as stocks rose. In the aggregate, the bears lost $16.5 billion in July.

Earnings season kicked off in July, with more than half of S&P 500 companies having already reported. As such, there have been many changes in forward-looking earnings estimates from Wall Street. Consumer Discretionary stocks saw the largest increase in EPS estimates, up 6.33%, while profitability forecasts for the energy sector fared the worst for the fourth month running, down 2.71%.

Total Insider activity fell drastically in July compared to June, with Insider buying only amounting to $2.7 million in July, according to ORTEX Insiders Data. However, 94% of the total buying activity was ranked as High trade significance, meaning this activity was based on conscious decisions, and not just the result of exercise of share options. Whilst significant, Insider buying activity was again insignificant compared to selling activity in July, which was $968 million. That translates into an insider buying ratio of just 0.28% across all levels of Trade Significance.

On the options front, positive order value for SPY was $2.32 billion, while negative order value for the fund was $2.77 billion. That positive order value ratio of 45.5% represents almost no change in sentiment among options traders, compared to June’s figure of 45.8%.

Market developments in July

Inflation fell to its lowest annual rate in more than two years during June, the product both of some deceleration in costs and easy comparisons against a time when price increases were running at a more than 40-year high. The consumer price index, which measures inflation, increased 3% from a year ago, which is the lowest level since March 2021. The Federal Reserve delivered a widely expected interest rate hike in July, leaving the Fed’s key borrowing rate in a target range of 5.25% – 5.5%. The midpoint of that target range would be the highest level for the benchmark rate since early 2001. Fed chief Jerome Powell declined to be pinned down on when officials may hike again while they assess the “totality of the data” on the employment and inflation picture, putting economic data in the driver’s seat before the Fed’s next meeting in September. Economic growth has been surprisingly resilient despite the rate hikes, with GDP growth and employment holding up remarkably well, fostering greater hopes of a soft landing.

Finally, earnings season kicked off in July and delivered more good news, paced by stellar reports from several tech titans. The outcomes largely surpassed expectations, as more than half of the companies in the S&P 500 have already reported, with 80% posting earnings beats, bolstering growth sectors already off to a cracking start this year and further fanning the flames of anticipation for prospective earnings from the burgeoning AI realm.

July’s Top Performing Trading Signal

On July 6th, ORTEX generated a Short Squeeze (Type 3) Trading Signal for Knightscope, Inc. (Nasdaq:KSCP) based on historical trading activity.

Shares of Knightscope, the advanced public safety technology company that builds fully autonomous security robots and blue light emergency communications systems, soared after the company announced on July 13 that it received an order for 15 units of its K1 Blue Light Tower emergency phone from a California public community college. Moreover, Knightscope revealed on July 14 the launch of real-time automated gunshot detection to its portfolio of autonomous security products and services. The security company said its gunshot detection systems are intended to reduce police and security response times and help quickly resolve such threats to public safety. The signal returned 139.18% over the prior best holding period of 11 days, making this the best performing ORTEX Trading Signal in July.

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

Highest Short Seller Gain and Loss for July

Nvidia (Nasdaq:NVDA) was the biggest loser for short sellers in July, as bears lost over $1.29 billion in the stock last month. Nvidia’s share price was buoyed by this month’s slowing inflation data, as tech companies tend to be sensitive to higher interest rates. Moreover, the company’s share price rose on the news SoftBank Group’s chip designer Arm Ltd is in talks to bring in Nvidia as an anchor investor, as it presses ahead with plans for a New York listing that could happen in September. Nvidia has been one of the most successful trades in 2023, up 225% year-to-date. Short interest remains mostly unchanged, as ORTEX data shows short interest stands at 1.35% of free float, or $15.02 billion.

The big winner for the bears last month was Ford Motor Company (NYSE:F). In an up and down month, Ford’s shares are down 12.83% after hitting a 10-month high in July. The company’s share price fell 5.9% after announcing price cuts for its flagship electric pick-up truck, the F-150 Lightning truck, deepening the EV price war in the US started by market leader Tesla. Ford also said it has temporarily closed its Rouge Electric Vehicle Center in Michigan to complete final plant upgrades as it aims to triple the facility’s annual run rate to 150,000 Lightning trucks, beginning this fall. Ford’s share price tumbled further after warning that electric vehicle (EV) adoption is proving slower than anticipated, and hundreds of thousands of its popular F-150 trucks were recalled because of a potential problem with the emergency brake. Short-sellers reaped $295 million in gains from betting against Ford, the most profitable short trade in July.

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

Short Squeeze Candidates with the Highest ORTEX Short Scores

Sirius XM Holdings currently has the highest ORTEX short score on our platform (with at least 3 analysts covering the stock), coming in at 95.53 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.