For this update on short selling in public Canadian companies, we cover:
- Top short positions
- Top increases in short positions
- Sell recommendations from independent analysts
- Recent targets of activist short sellers
- Stocks most at risk for short squeezes
- Most shorted ETFs
- Methodology and sources
Academic studies have found that short positions on average foreshadow underperformance in stocks. Investors holding, or considering buying, any of the stocks mentioned in this update may want to make sure they have done their due diligence. For more details, see the Methodology and sources section at the end.
Top short positions
To begin, the table below shows the most shorted Canadian companies as of April 28.
For many months, Imperial Oil Ltd. (IMO-T) has had one of the highest short positions. The position did decline noticeably over the past month but remains on the high side, at 22nd on the table of largest short positions. This still seems rather anomalous for such a large company that is firing on all cylinders. Readers have been asking what’s going on, so let’s dig into it.
A request for an explanation was directed to the company’s Investor Relations, but it went unanswered. Digging through various published sources did not turn up any edification directly related to the short sales, either. Nor can the short selling be attributed to an arbitrage operation since the company does not have any convertible securities in its capital structure.
Left to our own devices, one hypothesis may be that Imperial Oil has been performing so well that its valuation has become quite elevated; the short selling thus reflects views that the stock is overvalued and poised to revert to the mean. The shorting may also be tied to pairs trading, whereby shares in an overvalued company are shorted against a long position in an undervalued rival, the goal being to profit from a change in their relative valuations.
Indeed, in the months prior to the Iran-U.S. war, several brokerage analysts issued downgrades or Sell recommendations on grounds Imperial Oil was overvalued. Its stock price had climbed by nearly 500 per cent over the previous five years while rivals such as Suncor Energy Inc. (SU-T) and Canadian Natural Resources Ltd. (CNQ-T) had registered gains of less than half that extent.
RBC oil-and-gas analyst Greg Pardy, for example, observed in a mid-February note to clients that valuation had become “stretched.” He added: “The relative outperformance and valuation of IMO’s common shares appear to have disconnected from its fundamentals. We have downgraded Imperial Oil to ‘Underperform’ given higher expected relative returns elsewhere.”
Another possibility is that the cost of decommissioning spent wells and cleaning up tailing ponds/spills. With thousands of drill holes and mines from the past requiring reclamation, environmentalists have claimed that the financial statements of several oil-and-gas companies have not fully disclosed the magnitude of their liabilities.
Top increases in short positions
Changes in short positions can also be informative. A large increase often indicates that bearish sentiment is rising and there is a greater risk of a stock underperforming. Here is the table for companies with big hikes in short positions over the past 30 days.
The company with the largest jump in short sales is Psyence Biomedical Ltd. (PBM-Q), a biopharmaceutical company conducting research into the therapeutic potential of psychedelics such as psilocybin (Magic Mushrooms) and ibogaine.
Its stock tripped out big time in April, first spiking nearly eight-fold in the middle of the month only to plunge 50 per cent in the last week. Seems it had something to do with President Trump ordering further assessment of ibogaine as a treatment for post traumatic stress disorder.
Sell recommendations from independent analysts
Studies have found that brokerages issue Buy recommendations for more than 90 per cent of the stocks they cover. Why so bullish? It helps their underwriting departments float new issues of stock and support trading levels, say the studies. The analysts at Veritas Investment Research (VIR) issue Buy recommendations less than 60 per cent of the time because the firm does not have an underwriting department or rely on trading income. This enables their analysts to take a forensic approach to analyzing companies and to freely offer their opinions.
In recent weeks, VIR issued a Sell rating on the shares of online bank EQB Inc. (EQB-T), which is Canada’s seventh-largest bank and focused on digital lending and alternative mortgages. The analyst sees the bank as most exposed to the strains emerging in the Canadian economy because of the lower quality of its mortgage portfolio and a less diversified product portfolio (a credit-card line was recently acquired but there are still no wealth management, capital markets and investment banking operations).
VIR also maintains a list of its active Sell recommendations. The track record from inception on March 25, 1999, to April 28, 2026 is stellar: the recommendations on the Sell List are underperforming the S&P/TSX Composite Index by a compounded annual growth rate of 5.4 percentage points.
Recent targets of activist short sellers
Activist short sellers were busy during the past few weeks, releasing Sell reports on three Canadian companies: D-Wave Quantum Inc. (QBTS-N), Xanadu Quantum Technologies Ltd. (XNDU-T) and POET Technologies Inc. (POET-Q).
The short-seller report released April 3 by a former employee of quantum-computing company D-Wave Quantum declares that the company has “customer metrics that overstate real commercial adoption.” After a modest dip on the release of the report, D-Wave’s stock traded up by 25 per thanks to a Nvidia Inc. announcement that it had developed a new chip for quantum computing.
The Bear Cave newsletter of April 5 published a bearish report on another quantum computing company, Xanadu Quantum Technologies. It quoted some former employees and quantum specialists who made critical comments online. Xanadu’s stock has since shot up by more than 200 per cent, aided by Nvidia’s news release about its new chip for quantum computers.
POET Technologies offers photonic sensing and optical-light source products. Wolfpack Research’s report on April 14 claimed POET could saddle U.S. investors with unexpected taxes. The company responded that it would soon be redomiciling in the United States to remove this tax risk, and is not generating at this time any income that could be taxed.
Stocks most at risk for short squeezes
When some event or news item causes short sellers to close their positions in a rush, the result can be a spike in the stock price as they hurry to buy and return the borrowed stock. Data firm S3 Partners has created an algorithm, the Short Squeeze Score, to rank companies by the likelihood of a short squeeze, with 100 being the highest level and 0 being the lowest.
Over the past month, there was a noteworthy increase in the number of companies receiving high scores for short squeezes. Here are the ones with lofty readings of 80.00 or higher.
Most shorted ETFs
Short positions in exchange-traded funds (ETFs) can provide a picture of bearish sentiment at the sector and/or stock-market level.
Two energy EFTs Betapro Crude Oil Leveraged Daily Bull (HOU-T) and iShares S&P/TSX Energy (XEG-T),continue to register the highest short positions for ETFs. It appears short sellers are expecting an end to the Iran-U.S. war will blow over and oil-and-gas prices will revert back to where they were before hostilities commenced.
Methodology and sources
S3 Partners was the main source for short-sales data. It was selected because Canada has many companies interlisted in the U.S. and Canada, and S3 Partners can provide short positions (currency-adjusted) across both countries. Other data sources for short sales data don’t do this.
For the tables, a cutoff in the size of short sales was applied to exclude companies whose short positions were small in dollar value. The percentage of a company’s float (freely traded shares) is used to provide one of the better gauges of bearish sentiment.
As S3 Partners states, the percentage-of-float-sold-short indicator significantly overestimates bearish sentiment for very heavily shorted stocks and should be corrected by adding to the float the synthetic long positions created by short sales (when a stock is shorted, it creates two owners of the same shares — the original owner and the buyer of the borrowed stock sold by the short seller). This adjusted version of the percentage-of-float-sold-short indicator should be additionally calculated for a stock with extreme levels of short selling.
Note that short positions, regardless of data source or indicator, may not be purely bearish bets because of trades made for hedging or arbitrage reasons.
Larry MacDonald blogs at Shopify’s Journey and Investing Journey