Morgan Stanley initiated RIO with an Underweight rating and a $90 target on August 24. The stock closed at $105.30. That gap — 14.5% above the new target — is the sharpest bearish signal to hit Rio Tinto in months, and it lands as options traders have been quietly hedging a 15% rally in the stock.
Morgan Stanley's Alain Gabriel moved from Overweight to Underweight in a single step. That's a two-notch swing — rare from a major bank. The $90 target sits well below the consensus mean of $104.09. Bernstein's Bob Brackett still holds an Outperform, last raising his target to $83.50 in April. But the trend in analyst sentiment has been negative for months. JP Morgan downgraded to Neutral in March. Barclays cut to Equal-Weight in February. Morgan Stanley's move adds weight to a growing wall of caution.
The options market flagged rising unease before today's call. The put-call ratio hit 0.93 on August 21 — nearly 1.4 standard deviations above the 20-day mean of 0.75. That's the highest reading in the past 52 weeks, where the range runs from 0.58 to 1.08. Put demand climbed steadily through August, even as the stock gained 16% over the prior month. Traders were buying downside protection into strength. The Morgan Stanley note gives those puts a narrative.
Short sellers have actually been retreating. Estimated short shares fell 23% over the past month to around 7.9 million. The borrowing market is exceptionally loose — availability stands at 1,198%, meaning there are roughly 12 shares available to borrow for every one currently lent out. Cost to borrow is just 0.33%. The short community had been covering, not pressing, into the rally. The ORTEX short score sits at 33.3, the lowest reading in the past two weeks, down from 38.7 on August 14.
That divergence — shorts covering while options traders hedged — now resolves into a cleaner picture. The rally may have run its course. Whether fresh short interest builds from here is the question the data will answer next.
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