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Tesla is the 'biggest short in the market': strategist

Investor Michael Burry revealed in a regulatory filing a short position against Elon Musk's Tesla. Ihor Dusaniwsky, S3 Partners Managing Director, joins Yahoo Finance Live to discuss what's in store for Tesla and outlook for markets.

Video transcript

JULIE HYMAN: Let's talk short interest now because this is a frequent topic of interest for the market, particularly as we've been talking about with the so-called meme stocks and Reddit traders, et cetera. And also, it looks like another high profile person getting in on the short side of a hot trade. That's Tesla, and it's Michael Burry we're talking about, of "Big Short" fame. In a regulatory filing, he revealed that he had a pretty sizable short on Tesla shares.

Now we don't know where he stands now. This was as of the end of the quarter. We'll see if he's unwounded, I guess, when the next filing comes around. But Ihor Dusaniwsky is joining us now. He's S3 Partners Managing Director. And he tracks all this stuff. Ihor, Tesla is basically the most shortest shorted stock, big stock, that you guys track. Is this pretty consistent? Does it tend to go up and down? What does the historical numbers look like?

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IHOR DUSANIWSKY: Sure, I mean, Tesla is by far the biggest short in the market. It's almost twice as-- almost twice as much as the next two stocks put together, which is Amazon and Microsoft. It's at $23.8 billion of short interest. It is the largest worldwide short. It's been the largest worldwide short for several years now. Apple for a while was a large short a year and a half ago. But even with the short squeeze that's been going on in the name for the past year change, it's still keeping the number one spot by a mile.

BRIAN SOZZI: Ihor, what are you seeing in the tech complex? Ever since we've gotten some hot inflation reports, big tech stocks have sold off. What's your data telling you?

IHOR DUSANIWSKY: You know, there's an interesting thing where you're saying that the short exposure to big tech stocks have gone down because the market value has gone down as stock prices drop. But people are shorting into this downward movement. So they're actually keeping their bets up by shorting more stock as the stock price goes down. So they're not saying, hey, I got a $15 bet in. It's gotten-- and the market value has gone down to 10. They're shorting another 3 million, you know, $3. So even though short interest might be down slightly, they're still short selling in a sector, which is what's affecting the stock price.

MYLES UDLAND: You know, Ihor, if you look at the market more broadly, has the market recovered, I guess, if that's the way to think about it, from the distortions we saw back in January as the GameStop situation kind of got out of hand there for a couple of weeks and infected all kinds of other individual names within the market? As you look at your data, is it normalized to what you would expect short interest to be, broadly speaking? Or is short interest still elevated or perhaps even artificially depressed after we saw so many folks get burned?

IHOR DUSANIWSKY: Actually, short interest has gone up this year. We saw total short interest around the $970, $990 billion at the end of last year. Right now, we're seeing around $1.1 trillion of short interest in the US market. So we're actually seeing an increased amount of short interest across all sectors. But we have seen rotations in and out of different sectors. We've seen the financials and the energy sector kind of have some short covering. And the tech sectors and the retail sector is getting some more short selling. So it's definitely a reflection of what the pre and post-COVID, the trading activity is.

JULIE HYMAN: Well, can you dig a little bit more into that? And I know you are-- you mostly pay attention to the numbers and not as much, necessarily, to the sort of-- you're a charts guy. You're a data guy. But I wonder if you can tell us a little bit more about what is driving the uptick in short interest.

IHOR DUSANIWSKY: You know, this market on the long side has kind of gradually turned into a momentum market and less fundamental. And they see the same thing on the short side. We're seeing stocks that are getting crowded, that the Street is getting into in size. So you got stocks like Nikola that we're seeing increased interest in these short-term spikes of short selling. And I think we're seeing short sellers kind of getting in and finding names they like and building positions. It's getting more of a momentum market on the short side as well.

JULIE HYMAN: Is there any risk inherent in seeing a higher base of short interest?

IHOR DUSANIWSKY: Yeah, we're seeing that there are a handful of crowded stocks. Like I said, you have something like a Petco, a Carvana, relative crowded to its float, to its trading activity. So you're really getting stocks that are getting crowded on the short side that make it harder to exit a trade safely. So stock, you know short, sellers need to really pay attention to what they're getting into and what's going on around them. It's no longer a single bet where, like, I'm in this name, and I don't really care what the rest of the Street is doing.

You really have to see when stocks are covering, when other short sellers are getting into the market. You know, is my days to cover now because I have such a large position, you know, making it difficult and dangerous for me to keep this name on? So, you know, it's definitely something where a short seller has to watch out to what the rest of the Street is doing.

JULIE HYMAN: And we have seen some cautionary tales this year, haven't we, on that front? Ihor Dusaniwsky, great to see you. Thanks for being with us, S3 Partners Managing Director.