Short covering ahead?

In late August, pgh hit a low around $4.20 and only 0.3% of the stock was lent to short sellers. Since then, short positions (is that the right phrase?) have steadily climbed in almost a straight line to the current level of 3.0% -- 10 times more shares borrowed for shorting than 6 months ago. As with many asx stocks, pgh's daily trades have been swamped with short sales -- often above 40%!

And are pgh shares well below the August price as a result of this shorting frenzy? Nope! The price has been well above that low ever since and is almost back to $5. And judging from the short holding positions and daily volumes, many short sellers are likely underwater by 5% or more. Some would have profited a little when pgh dipped below $4.50 recently, but not many because volumes were fairly low and short positions dipped sharply only during Christmas holidays.

We are well past confession season and soon entering reporting season, which usually is risky for leveraged trades (short selling is hyper leveraging). My guess is that some short sellers will throw in the towel and eat their losses, which translates into short covering. To offset that effect, though, the share price is close to consensus target price and p/e is about the asx average (but still below defensive stock valuation).