ORTEX Monthly Recap for October

ORTEX Perspectives on the S&P 500 for October

October marked a downbeat month for the stock market, which led each of the three major indexes to post their third-straight losing month. The Dow and the S&P 500 ended the month lower by 1.4% and 2.2%, respectively, marking the first three-month losing streak for both indexes since March 2020. The Nasdaq Composite, meanwhile, declined 2.8% in October. Although November is a historically strong month for markets, investors are keeping an eye on a peak in bond yields. Earlier this month, the benchmark 10-year U.S. Treasury yield had crossed the key 5% mark for the first time since 2007, sparking concerns about the impact of higher-for-longer interest rates. ORTEX Short Interest Data showed bearish bets rose in all but four sectors in October, despite another losing month for stocks. Short interest (SI) shares in the Utilities sector rose the most, up 9.16%, while Industrial stocks saw the largest fall, down by 3.28%.

For the second month running, short sellers recorded a strong profit in October as stocks sputtered. In the aggregate, the bears made $17.6 billion in October.

With the latest earnings season kicking off in October, there have been some changes in forward-looking earnings estimates from Wall Street. With over 50% of S&P 500 stocks reporting Q3 earnings in October, Communication Services stocks so far received the largest increase in EPS estimates, up 2.53%. EPS estimates for the Consumer Discretionary sector fared the worst, down 3.13%.

Total Insider activity fell for the second month running, with total activity falling from $8.8 billion in August to $1.7 billion in October, of which 20%, or $340 million, was Insider buying activity, according to ORTEX Insiders Data. However, unlike the previous two months, a large portion (76%) of the total buying activity was ranked as Medium or High trade significance, meaning the majority of this activity was based on conscious decisions and regular market transactions, rather than the result of exercise of share options.

On the options front, positive order value for SPY remained fairly flat when compared to last month, falling slightly from $9.42 billion to $9.13 billion, while negative order value for the fund rose quite significantly to $11.9 billion. That positive order value ratio of 43% represents a fall in sentiment among options traders, compared to September’s figure of 52%.

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Market developments in October

After another tough month for stocks, the month end coincides with the Federal Reserve’s interest rate decision, due for release today, November 1st. There’s virtually no chance policymakers will make a move either way on interest rates, with fed funds futures pricing suggesting a more than 99% probability that rates will remain at current levels, according to the CME FedWatch Tool. Recent data has bought Fed officials time to decide their next step. Inflation, while decelerating, is still too high, and the economy is growing at a solid pace despite the highest benchmark interest rates since the early part of the century. What investors will watch, instead, are the signals that come from Chair Jerome Powell and the rest of the Federal Open Market Committee about where they’re leaning for the future.

Despite stronger performance from markets at the end of October, stocks have been reeling through the past two months, while Treasury yields have been hovering around 16-year highs – dating back to the early days of the financial crisis. With much of those fears centered around how much higher rates could go, and how long the Fed will keep them elevated, Powell’s post-meeting news conference, as well as the FOMC statement, could move markets.

The new earnings season kicked off in October, and of the 279 companies in the S&P 500 that have reported earnings to date, over 78% have beaten analyst estimates. Analysts expect earnings growth of 4.9% for S&P 500 companies in the third quarter. Despite this, disappointing showings from technology giants including Google parent Alphabet Inc. and Facebook owner Meta Platforms Inc. have weighed on sentiment and dragged down markets. The former ended October down 5%.

Highest Short Seller Gain and Loss for October

Microsoft (Nasdaq:MSFT) was the biggest loser for short sellers, as bears lost $687 million in the stock in October. Microsoft closed out the month with a 7.1% gain, boosted by strong financial earnings on October 24. Wall Street analysts had high praise for the results, both from an earnings perspective and the performance of some segments, including the company’s Azure cloud unit and the anticipated rollout of Microsoft’s artificial intelligence product Copilot. The dollar value of short interest in Microsoft has risen by 14% in October, as ORTEX data shows short interest now stands at $14.72 billion, up from $12.9 billion last month.

The big winner once again for the bears last month was Tesla (Nasdaq:TSLA). Tesla shares wiped out nearly one-fifth of their value in less than two weeks at the end of October amid growing concerns that demand for electric cars is starting to weaken. The selloff started when the electric-vehicle giant dialed back growth expectations during its third quarter earnings call. That was followed by grim commentary from several global automakers, as well as Wall Street analysts. Battery-maker Panasonic Holdings and chipmaker ON Semiconductor Corp. also sounded alarms for the EV industry. The warnings have weighed on stocks across the US automotive sector, which has also been battling extensive negotiations with its labor unions over wages. Still, Tesla’s decline stands out: shares have sunk over 17% since the Oct. 18 report, compared to a 2.8% drop in the S&P 500 Index, and a 3.4% decline in the Nasdaq 100. The retreat in the EV-maker’s stock price has erased about $130 billion from the company’s market capitalization. Short sellers have rejoiced and made $4.3 billion in Tesla in October.

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

Sientra currently has the highest ORTEX short score on our platform (with at least 3 analysts covering the stock), coming in at 98.85 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.