In this update on the short selling of shares in Canadian public companies, we report on:
How short squeezes are driving stock market swings during 2025 Canadian companies recently targeted by activist short sellers Largest short positions in small-, mid- and large-cap Canadian companies Largest short positions in Canadian exchange-traded funds (ETFs) Short squeeze candidates A legendary short seller speaks outSell recommendations from an independent research firmEnd note on methodology and data sources.
How short squeezes are driving stock market swings during 2025
Stock markets in 2025 have experienced an extreme amount of volatility, driven by headlines from U.S. President Donald Trump’s trade war. Short sellers are getting whipsawed, laying on positions as tariffs are hiked and trade negotiations fade, then rushing to quickly unwind their bets when the tariffs are dialed down and breakthroughs in negotiations occur. But the unwinding of short positions in a hurry leads to a stampede on the part of short sellers to buy back the stocks they borrowed, which in turn triggers short squeezes that send stock prices shooting skyward.
These short squeezes, according to media outlets such as CNBC, are a major factor behind the sharp upswings in stocks on days such as April 9 when Mr. Trump first backtracked on his “Liberation Day” tariffs. String together a few of these tariff U-turns, along with hints of some breakthroughs on trade deals, and what we get is a rebound in the stock market that retraces the sell-offs in 2025, and then some. The problem is that this topsy turvy process of headline-driven fluctuations is still in play.
Canadian companies recently targeted by activist short sellers
Activist short sellers search for companies that are resorting to fraud or misleading portrayals of their financial results, in hopes of scoring a gain by selling short the shares of such miscreant companies and disseminating bearish views on them by publishing critical research reports and commenting in the media. Two Canadian companies were recent targets of activist short sellers.
In late April, Kerrisdale Capital took aim at D-Wave Quantum Inc. (QBTS-N), a quantum computing company headquartered in Burnaby, B.C. Shares in the company, which went public via a SPAC merger, are up more than 1,000 per cent over the past 12 months as investors grow enamored with potential for quantum computing, which is said to be many times more powerful than computers in existence. Kerrisdale Capital claims D-Wave’s valuation, as highlighted by a price-to-sales ratio of more than 200, is tenuous given the current wave of quantum enthusiasm is driven by the long-term potential of gate-model quantum, not D-Wave’s annealing approach.
Late in May, Iceberg Research took a swing at Vancouver-based TMC The Metals Company Inc. (TMC-Q), a deep-sea mining company seeking to harvest critical metals found in nodules on the seabed. In 2025, Mr. Trump began pressing for faster regulatory approval of deep sea mining projects, igniting a dramatic rise in TMC’s stock from its penny status in 2023 and 2024. However, Iceberg Research claims that TMC has “striking similarities” to its failed predecessor, Nautilus Minerals, has yet to issue a long-promised pre-feasibility study and the “projections provided by TMC are based on a wildly optimistic” preliminary ‘initial assessment’ published in 2021.
Largest short positions in small-, mid- and large-cap Canadian companies
–
–
Canadian Solar Inc. (CSIQ-Q) and other solar companies operating in the United States sold off sharply May 22 on news that the U.S. House of Representatives had signed off on Mr. Trump’s “big beautiful bill” of proposed tax and spending measures, which accelerates the phasing out of grants and tax credits for the renewable energy sector. Canadian Solar’s dip was relatively modest vis-à-vis other solar companies — but the long steady slide in its share price continues, from the peak of US$40 in mid-May of 2023 to the current US$10.50.
–
–
Short sales of shares in Lundin Mining Corp. (LUN-T) are at 13 per cent of float. What is interesting about this level is that the company would not appear so high up in the rankings of short positions if other data sources had been used. They report short positions of companies from just one stock exchange, so miss the whole picture if a company is listed on other exchanges. In Lundin Mining’s case, it is listed on Canada, U.S. and European markets, all with noteworthy short selling activity.
–
–
Imperial Oil Ltd. (IMO-T) continues to lead other large-cap companies when it comes to short positions. The integrated oil company has a strong balance sheet, steady cash flow, vigorous buyback program and long history of annual dividend increases, so it’s possible the short position simply reflects arbitrage operations or pairs trading (where Imperial Oil’s prospects are deemed good, but not good enough relative to some other oil companies).
On the other hand, there are regulatory risks, as highlighted by the permit suspension for the Norman Wells oil field, as well as risks associated with the transition to a green environment and renewable energy. That said, some analyst are concerned with overvaluation, plus world oil
–
–
Largest short positions in Canadian exchange-traded funds (ETFs)
–
–
What stands out for the table of the most shorted ETFs is the huge leap of the BMO S&P/TSX Equal Weighted Banks ETF (ZEB-T) into the top spot with 16.1 per cent of float short (compared to 2.2 per cent of float short in mid-April). Analyst commentary on Bay Street suggests this escalation could be tied to worries that Mr. Trump’s trade war may weigh on Canada’s economy and lead at some point to lower loan demand and a ratcheting up of reserves to cover loan losses.
Short squeeze candidates
Whenever some event or tipping point causes short sellers to close their positions in a hurry, the result can be a spike, or squeeze, in the stock price as they rush to buy and return the stock they borrowed. 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 probability and 0 being the lowest.
–
–
This month’s table of the top short-squeeze candidates is seeing the highest readings ever, since tracking began in this column. No surprise there with on-again-off-again U.S. trade policies.
A legendary short seller speaks out
Jim Chanos has been a professional short seller since 1985, when he set up his hedge fund Kynikos Associates LP, which operated right up to 2023 when it was converted to a family office and advisory. He appeared mid-May on the Risk and Return podcast and had some interesting things to say in connection with short selling. As they also have implications for Canadian stocks, it’s worth highlighting some main points here.
Mr. Chanos reiterated a viewpoint he has made in the past, declaring: “We are in the golden age of fraud.” And companies are more brazen about it now, aggressively using pro-forma metrics to convert losses into profits. So what you see is: “companies with enormous amounts of share-based compensation or restructuring charges simply adding everything back to give investors a number that isn’t a real number.” He added: “I remember General Electric a few years ago in one of their quarterly releases had something like 20-plus pages of adjustments to their earnings.”
Another big concern for Mr. Chanos is just how “much profit margins have continued to increase and bring corporate profitability to all-time highs, on which some pretty high multiples have been placed.” Historically, corporate margins were a mean-reverting series but they have not mean reverted for 15 years since the recession of 2008-2009. “If for whatever reason profit margins mean revert, the downside’s going to be a lot greater than people imagine.”
Sell recommendations from an independent research firm
Toronto-based Veritas Investment Research is an independent investment research firm. Because they do not receive revenues from investment banking or trading, they can provide unconflicted investment advice on stocks. Here are their Sell ratings issued in recent weeks (views may have changed since they were issued):
–
–
End note on methodology and data sources
S3 Partners was the main source for short-sales data. It was selected because Canada has many companies interlisted on the U.S. and other exchanges, and S3 Partners sums short positions (currency-adjusted) across both countries. Other data sources for short sales data don’t do this.
A cutoff was applied to exclude companies whose short positions were miniscule in dollar value. The percentage of a company’s float (freely traded shares) is used instead of the percentage of outstanding shares to provide a better gauge of bearish sentiment.
Note that short positions, regardless of data source, may not be purely bearish bets because of trades made for hedging or arbitrage reasons.
Larry MacDonald is a regular contributor to the Globe and Mail, and author of several business books, the latest being The Shopify Story
Be smart with your money. Get the latest investing insights delivered right to your inbox three times a week, with the Globe Investor newsletter. Sign up today.