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Each week the Tel Aviv Stock Exchange publishes a review of the last week in short selling. Tomorrow it will be revealing the figures as of January 26, 2005. Market animals will be reading the report all the more avidly because analysts are completely at odds over the impact of the Hamas victory on Israeli stocks.

Short selling involves selling an underlying assets that you do not own. How? You borrow it, sell it, and then when its price drops (in keeping with your expectations) - you buy it back and return it to the lender. Of course, if its price increases, you have lost money.

One sells short mainly when one expects share prices to drop, or as part of an options strategy.

Capital market sources expect this week?s report to show a spike in short selling. One is because stock prices have reached record heights: for all the uncertainties, the TA-25 index crossed 850 points for the first time last week.

Bets climb to NIS 3 million

The players believe that as much as NIS 3 billion has been bet on the market reversing into the red. That is almost double the amount gambled on a bear market in November and December 2005.

The amount of short selling started to climb steeply as January arrived. The week that Prime Minister Ariel Sharon suffered his second stroke, the one that incapacitated him, ended with NIS 2.2 billion bet on short positions. That was an increase of NIS 600 million from the week before.

We know what happened: the gamblers that the market would tank lost money, a lot of it. But the voices worrying about uncertainties and high pricing seem to be growing in volume. Every time Tel Aviv rises a bit more, so does the risk.

Of course, not all believe investors will be on the run any time soon. Bulls point out there is no concrete reason for a retreat: the macroeconomic parameters remain strong, economic growth forecasts are encouraging and foreigners have been investing more and more.

Whatever the case, what is sure, is that the amount of bears betting the market will retreat is growing.

Bearish on banks and chemicals

A closer look at the figures is revealing. From one week to the next, the number of players shorting bank stocks is growing. So is short-selling Teva. Apparently the trend of short-selling bank shares continued in the last week, but for Teva the situation may have reversed as the company regained its title of Biggest Generic Drug Company in the World, as it wrapped up the purchase of Ivax Corp. Also, its stock lost 10% from December.

Other blue chips targeted by short-sellers include Africa Israel, The Israel Corp, Israel Chemicals, Bezeq, and Makhteshim Again, all faves among foreign investors.

From the week before to last week, there was more shorting in Africa Israel and The Israel Corp; the position regarding ICL remained unchanged; while in Bezeq, the bears backed off a bit.

All these stocks have been easing back this year, with the exception of ICL and Bezeq.

At the bottom of the table of short-sold stocks, perhaps attesting to some optimism, is IDB, which did not gain as much as the other blue chips in 2005. This is especially true of Clal Industries and Clal Insurance.

Migdal and Harel, two other insurance companies, are also at the bottom of the short-listed blue chips.