ORTEX Monthly Recap for March

ORTEX Perspectives on the S&P 500 for March

All three major averages were positive in the first quarter, despite turmoil in the banking sector highlighted by the collapse of Silicon Valley Bank this month. ORTEX Short Interest Data showed most sectors saw a rise in bearish bets last month. Short interest (SI) shares in the Consumer Staples sector fell the most, declining 3.36%, while Financial stocks saw a 17.19% jump in SI shares.

With all the major indexes advancing in March, short-sellers closed out the month in the red. In the aggregate, the bears lost $9.03 billion last month.

With earnings season now in full swing, there have been some significant changes in forward-looking earnings estimates from Wall Street. Materials stocks saw the largest increase in EPS estimates, up 5.13%, while profitability forecasts for the real estate sector fared the worst, down 1.85%.

Insider buying activity skyrocketed in March, up from $602.8 million in insider purchases in February to $2.7 billion last month, according to ORTEX Insiders Data. Almost all 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 rose in March, totaling $6.54 billion. That translates into an insider buying ratio of 29.22% across all levels of Trade Significance, which is drastically up from February’s 9.9%.

On the options front, positive order value for SPY was $6.95 billion, while negative order value for the fund was $13.31 billion. That positive order value ratio of 34.2% represents a drastic reduction in sentiment among options traders, compared to February’s figure of 60.3%.

Market developments in March

US stocks faced an incredibly choppy month, with markets thrown upside down following the collapse of Silicon Valley Bank and Signature Bank. On Wednesday March 8 Silicon Valley Bank’s parent company, SVB Financial Group, announced it had sold $21 billion of securities from its portfolio at a loss of $1.8 billion and would sell $2.25 billion in new shares to shore up its finances. That spooked prominent venture capitalists, who instructed clients to pull their money from the bank, with depositors yanking $42 billion from SVB on March 9th alone. On Friday, efforts to raise new equity or find a buyer were abandoned and SVB was put into receivership, sending chills through the banking industry. SVB is the second-biggest bank failure in US history, behind Washington Mutual in 2008. Fears of contagion sent shares in regional lenders plummeting, and Signature Bank was closed by New York State regulators Sunday following a deluge of deposit outflows on Friday.

Inflation data, including the core Personal Consumption Expenditures (PCE) Price index, the Fed’s preferred measurement of inflation, rose just 0.3% in February and 5% from the prior year, coming in slightly below economists’ expectations of a 0.5% gain for February and 5.1% annual rise. Whilst this is a deceleration from January, this remains far higher than the Fed’s ultimate 2% goal. It was a round of data consistent with the peak inflation narrative but also with the Fed’s insistence that there remains work to be done to re-establish price stability.

At its Mar 22 meeting, the FOMC again opted to raise the federal funds target rate by 25 basis points (0.25%), despite the risk of adding to financial turmoil following the string of bank failures, making it clear that inflation remains policymakers’ top concern. Fed chief Jerome Powell advised that more Fed tightening may be in store, and that the central bank will raise rates higher than expected if needed. Market participants are conflicted on the outlook for monetary policy, with Blackrock arguing rates will continue rising whilst TD Securities and DoubleLine Capital say the Fed is mistaken about the need to keep raising interest rates as the risk of recession grows.

Labor market data for March was mostly resilient, with the Bureau of Labor Statistics reporting that nonfarm payrolls rose by 311,000 in February, coming in ahead of the consensus forecast of 225,000. The country’s unemployment rate rose to 3.6% however, providing some comfort to the Fed.

For March, the Dow Jones Industrial Average advanced 1.89%, the S&P 500 gained 3.51%, while the tech-heavy Nasdaq Composite rose 6.69%.

March’s Top Performing Trading Signal

On March 15th, ORTEX generated Type 2 and Type 3 Short Squeeze Trading Signals for Corbus Pharmaceuticals Holdings (Nasdaq:CRBP) based on historical trading activity.

The data looks consistent with a short squeeze – high short interest, cost to borrow and utilization, with the catalyst of a massive price increase. As a result, the signals were able to enjoy a return of 142.67% over the prior best holding period of 10 days, making them the best performing ORTEX Trading Signals in March.

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

Highest Short Seller Gain and Loss for March

Apple (Nasdaq:AAPL) was the biggest loser for short sellers in March, as bears lost $1.8 billion in the stock. Since the beginning of the year, Apple has risen 27%, with shares of the consumer electronics giant  up by 12% in March. Despite their losses, bears are mostly unchanged, as ORTEX data shows short interest has remained flat in March at 107 million shares, or 0.68% of free float.

Unsurprisingly, the stock that generated the most profit for the bears last month was a US bank – First Republic Bank (NYSE:FRC). The bank’s shares plunged 89% in March amid concerns that the San Francisco-based lender could fall victim to the same forces that caused Silicon Valley Bank and Signature Bank to collapse, only to be saved by a lifeline from 11 of the largest banks in the US who deposited $30 billion into their smaller peer. Short-sellers reaped $848 million in gains from betting against First Republic Bank, the most profitable short trade in March.

Short Squeeze Candidates with the Highest ORTEX Short Scores

Pessimism among EV stocks has been a constant so far in 2023, as several EV stocks ranked among the highest ORTEX Short Scores on our platform (with at least 3 analysts covering the stock). 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.

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