For this update on the short selling of Canadian companies, we cover:
- Top changes in large-cap short positions
- Top changes in mid-cap short positions
- Top changes in small-cap short positions
- Stocks most at risk for short squeezes
- Highlights from recent academic articles on short selling
- Methodology and sources
Short selling occurs when a stock is borrowed with the help of a broker and then sold. If the price of the stock falls, a profit can be earned when it is bought back and returned to its owner. A gain can also be realized if the shorted stock falls relative to a stock that the short seller holds, in what is called a pairs trade. Short sales for arbitrage or hedging reasons are weaker signals.
Top changes in large-cap short positions
The focus is often on the level of short positions in stocks. But changes in short positions can also be instructive: an upward trend indicates a buildup in bearish sentiment and vice versa, a downward trend indicates an easing in bearish sentiment.
Lululemon Athletica (LULU-Q), a supplier of athletic clothing and footwear, is facing margin pressures due to: i) higher tariffs on its imports and ii) increased competition in athleisure markets. As well, North American sales are sagging because of delays in updating clothing lines.
Insurer Manulife Financial Corp. (MFC-T) embarked several years ago on an expansion into Asia that is now generating double-digit growth. Additionally, rising interest rates in 2026 will enable its bond portfolio to be rolled over into higher rates.
Top changes in mid-cap short positions
Almonty Industries (AII-T) is a supplier of tungsten. During 2025 and the first quarter of 2026, its stock soared more than 2,000 per cent, so short sellers may be betting it is overvalued. Also, the company recently issued convertible bonds and the bond holders are likely shorting the stock to engage in convertible arbitrage.
For the longest time, Air Canada (AC-T) was among the most shorted of companies on the TSX; now the short position has dwindled considerably. It was facing several headwinds such as volatile fuel costs, but travel demand has held up and the company recently posted better-than-expected results, causing short sellers to cover their bets.
Top changes in small-cap short positions
Groupe Dynamite Inc. (GRGD-T), a fast-fashion retailer, listed on the TSX nearly two years ago, and its stock more than quadrupled in value within 18 months. But investors’ confidence in the company’s hypergrowth was shaken in April by the announcement of a substantial drop in same-store sales and a lower target for new store openings.
Canadian Solar Inc. (CSIQ-Q) has produced some good news lately. The first phase of its solar-cell manufacturing plant in Jeffersonville, Indiana was opened; the company was admitted to the S&P Global Energy’s Premier List of Tier 1 Cleantech Companies. Moreover, the last quarter beat guidance on shipments and reported a strong backlog for its battery subsidiary.
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. Here are the companies with readings of 70.00 or higher.
Highlights from recent academic articles on short selling
The impact of short selling on auditor behavior, Frontiers in Economics and Management
The threat of short selling creates incentives for auditors to enhance the quality of their audits. It also limits corporate misconduct, which gives auditors a cleaner sheet to work with.
The impact of short selling on the readability of corporate financial reports, Frontiers in Economics and Management
There is some evidence that when short-sale constraints are relaxed, companies produce more opaque reports to make it harder to uncover bad news.
Short selling ETFs and market performance, The Journal of Financial Research
This study finds that large short positions in market-level ETFs presage a rise in the stock market. That’s because institutional investors short ETFs to hedge their stock portfolios and when they buy back their ETF short positions, it creates upward pressure on stocks.
Disciplinary effect of short selling, China Accounting and Finance Review
Corporate executives are more likely to make better mergers and acquisitions knowing that short sellers can pile on their company if a bad decision is made.
A long and a short leg make for a wobbly equilibrium, American Economic Review
Short sellers can correct the mispricing of stocks but they may also contribute to it in the short term. In particular, they sometimes cover their positions in a panic, precipitating a short squeeze that worsens the mispricing of a stock.
Betting against ESG sinners, Journal of Behavioral and Experimental Finance
This paper finds short sellers in the U.S. sniff out ESG sinners early on. The downward pressures they exert on their stock prices also provide incentives to become more ESG compliant.
Does short selling of a company affect analysts’ forecasts for its suppliers? Economic Modelling
A heavily shorted company can signal trouble ahead for its suppliers. The study finds that financial analysts act on this information to adjust their forecasts for the company’s suppliers.
Short selling and stock returns: evidence from the first-day of listing on the STAR market, Asia-Pacific Journal of Accounting & Economics
High short selling on the first day of trading for a company portends poor performance in the stock price over the near term.
Analysis of the effect of short selling on the scale of enterprise commercial credit financing, Proceedings of 2nd International Conference on Advances in Economics and Management Science
Short sellers create incentives for disciplined financial management, which promotes healthier commercial credit financing and the stability of the financial system.
Benchmarked Ownership, Short Covering and Price Efficiency, Management Science
Stocks with a large portion of their float held by index funds are more likely to punish short sellers because they are more subject to short squeezes triggered by company announcements of positive news.
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) sold short is used to provide one of the better gauges of bearish sentiment.
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).
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 is the author of The Shopify Story and blogs at Shopify’s Journey