Construction materials giant James Hardie (ASX:JHX) has seen its shares pop +10.7% in early afternoon trades as Thursday markets rally on Trump’s tariff pause.

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But there’s something to consider: Since announcing its questionable $14B deal to take over US outdoor decking retailer AZEK, short sellers have smelt blood in the water, with shorts now at 7% of shares.

Today’s recovery has pared some losses originally spurred by that deal, which saw James Hardie shares sell-off in an already pressurised environment.

(To date, the Oz company’s market cap is still a healthy $15 billion.)

But whether or not the share price can recover back to where it was on March 21 – at $46.80/sh – likely remains the new key test for investors watching the stock. Especially those who are holding.

Public short seller data, which lags by a week, shows that while the stock price dropped after announcing its AZEK deal – which I spoke about with HotCopper editor Isaac McIntyre in a recent HotCopper Market Watch podcast – short sellers were moving in with gusto.

And while it’s hard to assess where the short selling may stop given the data lag, a look at the short interest chart on James Hardie is telling.

Since late March, we haven’t heard anything from James Hardie, nothing meaningful anyway, about progress on the deal.

And the deal wasn’t exactly smiled upon by investors, with the general mood in the room – outside some bulls, who were also analysts – being that the $14B price tag is a bit too much.

After all, the size of that deal is equivalent to James Hardie’s market cap. There is the fact that James Hardie shares would list on the NYSE if the deal goes ahead which does suggest greater exposure to “American exceptionalism,” which is all well and good as long as tariffs aren’t panicking Wall Street.

Tariffs are a huge part of this story, too – because the future of the American economy in the next six to twelve months will ultimately play a large part in determining the success of the AZEK deal, and, the rationality of its $14B pricetag.

Right now, that’s all a largely unknown quantity day to day.

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So can investors turn this into a short squeeze? It wouldn’t be wise to try and tell one way or the other given the chaotic backdrop framing the stock.

But right now, it’s perhaps wise for traders to keep an eye on short-selling pressure on one of the ASX’s larger companies.

And all other companies, for that matter.

JHX last traded at $35.70/sh.

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