We reveal how short sellers are positioning themselves in companies announcing earnings in the coming week

• JC Penney most shorted company announcing earnings
• Spanish grocer DIA sees short interest climb to a new all-time high
• Japanese biotech firms Sosei and Peptidream see surge in short interest in last month

North America

The most shorted company announcing earnings this week is JC Penney which hails from the retail sector which has by far and away proved to be the most prolific patch for bears so far this year. The retailer started the year on the back foot when it announced a larger than expected fall in same store sales in its fourth quarter earnings update which prompted it to announce a large wave of store closings. The market seems skeptical of the company's ability to turn its fortunes around as Penney shares have lost over a third of their value year to date. Short sellers seem to confer with the overall market mood as demand to borrow the firm's shares has nearly doubled over the same time to the current 36% of shares outstanding, the highest such figure in over three years.

Biotech continue to feature prominently on short seller's minds and this week sees short sellers bracing for disappointing earnings from Ligand Pharmaceuticals, Eagle Pharmaceuticals and Amicus Therapeutics which all have more than a fifth of their shares out on loan.

The firm seeing the largest rise in shorting activity in the lead-up to earnings is newly rebranded Taser which now trades under the name Axon, the name the firm has given to its line of evidence gathering body cameras. These cameras play a growing, yet still unprofitable, part of the company's revenue mix as it tries to diversify away from the non-lethal stun gun that has made the company a household name. Short sellers seem skeptical of the company's recent moves however as demand to borrow Axon's shares has more than doubled in the last month to 30% of shares outstanding, the highest level in nearly two years.

Shorts have also been busy shorting lethal weapons manufacturers over recent months as well as Sturm Ruger has more than a quarter of its shares out on loan. Short sellers targeted the company in anticipation of slowing gun sales after the Republicans swept to power back in November. Gun sales have remained buoyant according to recent background check volumes, however Sturm Ruger shares, which slid heavily following the election, have gone on to regain most of their lost ground. This has caused short seller to rethink their Strum Ruger short as demand to borrow the company's shares has slid significantly in recent weeks.

Europe

The big European short target to announce earnings this week is Spanish retailer Distribuidora Internacional de Alimentacion which has 18.2% of its shares out on loan. The retailer's sales have consistently missed analyst expectations in each of its recent trading updates. Short sellers are positioning for another earnings disappointment as the current demand to borrow the firm's shares stands at the highest level in over three years.

Short sellers are also lining up for another bear raid on Norwegian geophysical survey firm Petroleum Geo Services (PGS) which has seen the demand to borrow its shares surge by 22% in the last month to 9% of shares outstanding. While PGSs' short interest is still way off the levels seen last year when short sellers borrowed over 23% of the company's shares outstanding the recent surge shows could indicates that short sellers are positioning for another round of capital expenditure cuts form oil firms in response to the recent slide in oil prices.

Peripheral banks continue to heavy demand to borrow as Banca Piccolo Credito Valtellinese Spa and Unione Di Banche Italiane Spa have both seen their short interest climb by over 15% in the month leading-up to earnings.

Asia

Japanese firms make up the entirety of the 13 Asian firms which have more than 10% of their shares shorted ahead of earnings announcements this week.

The high conviction short for this week is pharmaceutical firm Sosei as short sellers have increased their borrow in the firm's shares by 74% in the last month to 19.5% of shares outstanding. Short sellers started to target the firm in earnest last year when the firm announced an unexpected loss. Demand to borrow the firm's shares has continued to climb in earnest after they lost over half their value from the highs posted last year.

Fellow high flying biotech firm Peptidream also joins Sosei on the list of heavily shorted stocks, with an all-time high 11% of its shares are out on loan.

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This article was published by S&P Global Market Intelligence and not by S&P Global Ratings, which is a separately managed division of S&P Global.