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Why Bears Continue to Show Interest in Eastman Chemical

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Eastman Chemical’s short interest

EMN’s short interest has risen since the beginning of 2018. On December 29, 2017, EMN’s short interest as a percentage of its outstanding shares stood at 3.2%. Its short interest had increased to 3.7% as of March 22, 2018. During the same period, the stock price has moved up from $92.64 to $103.97.

The trend suggests that as the prices increased, the short interest on EMN also increased, indicating that fresh shorts were initiated at higher price levels. EMN has a high beta of 1.1, which indicates the stock is more volatile than the broader market.

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Where will stock head?

We can expect EMN’s short interest to come down assuming the stock market tension related to trade wars eases. We could also see some shorts get covered if EMN stock continues to move upwards. EMN, which reported strong 4Q17 earnings, expects the trend to continue in the upcoming quarter as well. 1Q18 earnings will likely dictate the direction of the stock.

Eastman Chemical’s short interest compared to its peers

EMN’s short interest is ~3.7 million shares, and its average trading volume is ~1.34 million shares. As a result, its short interest ratio is 2.8x, which indicates that it would take three days to cover all of the short positions in its stock. Below are the short interest ratios of EMN’s peers:

  • Olin’s (OLN) short interest is ~3.2 million shares, while its average number of shares traded is 2.3 million. Its short interest ratio is ~1.4x, which indicates that it would take just one day to cover its short positions.
  • LyondellBasell’s (LYB) short interest ratio is 4.2x, which means that it would take four days to cover its short positions.
  • Westlake Chemical’s (WLK) short interest ratio is 5.0x, which means that it would take five days to cover its short positions.

Investors can indirectly hold EMN by investing in the First Trust Materials AlphaDEX Fund (FXZ), which invested 4.0% of its portfolio in the stock as of March 29, 2018.

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