Weekly Net-Short Report: Investors pessimistic on some UK defence stocks

In the latest FCA’s report on net-short activities by investment funds, Arrow Global and Wood Group are the two most shorted stocks.

However, signs of life are emerging on Arrow Global’s chart. In particular, ARW’s share price is breaking out of a multi-month base (see below). When prices trade north of its long-term trend indicator, this may lead to further momentum buying, which could prompt some short covering. Near-term resistance is noted at 250p.

Babcock (BAB) and Ultra Electronics (ULE) are among the top ten most shorted stocks. The former has 9 investment funds holding net short positions on it. A quick glance at BAB’s chart tells you why. Prices have been trending lower since 2014 in a very consistent fashion. Each pivot high was lower than the one before. Prices slumped by a fifth just recently (see below). Given BAB’s bearish outlook, funds are likely to continue to short positions here.

Ultra Electronics, however, has a choppier trend. Its price trend remains in a volatile range pattern, with the upper and lower range at 1,750p and 1,200p. Some reversion price action may take place near 1,700p but, equally, an upside breakout may occur.

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