Peabody Energy Becomes #124 Most Shorted S&P 500 Component, Replacing Denbury Resources

The most recent short interest data has been released by the NASDAQ for the 07/31/2014 settlement date, and we here at Dividend Channel like to sift through this fresh data and order the underlying components of the S&P 500 by "days to cover." There are a number of ways to look at short data, for example the total number of shares short; but one metric that we find particularly useful is the "days to cover" metric because it considers both the total shares short and the average daily volume of shares typically traded. The number of shares short is then compared to the average daily volume, in order to calculate the total number of trading days it would take to close out all of the open short positions if every share traded represented a short position being closed.

START SLIDESHOW:
Top 25 S.A.F.E. Dividend Stocks »

In our new rank based on the most recent short interest data from NASDAQ, Peabody Energy Corp ( BTU) has taken over the position of #124 most shorted S&P 500 component, from Denbury Resources, Inc. ( DNR) which is now in the #62 spot. The "days to cover" at 07/31/2014 was 5.39 for BTU, and 7.46 for DNR; this compares to the average across all S&P 500 components of 4.18 (down from the average back on the 07/15/2014 settlement date of 4.91). The chart below shows the movement over time of the "days to cover" values of both BTU and DNR, versus the average S&P 500 component.

Loading+chart++2014+TickerTech.com

Below is a chart showing the relative positions of BTU versus DNR over time within the 500 S&P 500 components, with #1 representing the component with the highest "days to cover" value (most heavily shorted) and #500 representing the component with the lowest "days to cover" value (least heavily shorted):

Loading+chart++2014+TickerTech.com

A stock with a high "days to cover" value compared to its peers would be considered to have a higher level of short interest as compared to those peers. This could mean short sellers are using the stock to hedge a long bet elsewhere, or could also mean that short sellers believe the price of the stock will decline. When short sellers eventually cover their positions, by definition there must be buying activity because a share that is currently sold short must be purchased to be covered. So investors tend to keep an eye on that "days to cover" metric, because a high value could predict a sharper price increase should the company put out some unexpectedly good news — short sellers might rush to cover positions, and if the "days to cover" number is high, it is more difficult to close those positions without sending the stock higher until the higher price produces enough sellers to generate the necessary volume.

Below is a three month price history chart comparing the stock performance of BTU vs. DNR:

BTU,DNR Relative Performance Chart

According to the ETF Finder at ETF Channel, BTU and DNR collectively make up 4.29% of the Guggenheim S&P 500 Equal Weight Energy ETF (RYE) which is lower by about 1.2% on the day Tuesday.

At last check, BTU was off about 2.2%, while DNR was off about 1.4% on the day Tuesday.

More from Stocks

Carnival CEO Arnold Donald: China Will Become the Largest Cruise Market

Carnival CEO Arnold Donald: China Will Become the Largest Cruise Market

Stocks Finish Higher After Release of Fed Minutes

Stocks Finish Higher After Release of Fed Minutes

Has Wall Street Completely Lost Its Mind on General Electric?

Has Wall Street Completely Lost Its Mind on General Electric?

Did Trump Just Torpedo the Stock Market Again?

Did Trump Just Torpedo the Stock Market Again?

10 Questions for PayPal Ahead of Its Big Investor Day

10 Questions for PayPal Ahead of Its Big Investor Day