It pays to follow what short sellers are doing. Notwithstanding concerns about high short interest and short squeezes, backtesting has shown that stocks with the highest levels of short interest underperform the market – meaning the “shorts” produce results for their investors. The shorts, as a group, are good analysts, bringing skepticism and skill to their work. If you are long a stock that suddenly attracts the shorts’ interest, it is worth retesting your thesis and trying to understand why they are short. At the very least, you might gain a better understanding of the risks to your long position. At best, it could save you from an expensive mistake.
What are the shorts doing today? From our Short Update, June 16, 2014:
Total short market value increased 4.1% ($23bn) over the past 30 days. Netting out market returns by sector implies that net, new active shorting increased $8.1bn. The largest increases took place in Health Tech and Consumer Services; the largest drops are seen in Consumer Durables and Staples (Chart 2). Consumer Durables and Minerals have the highest Short interest to shares outstanding (SISO, Chart 3).
Stocks showing the largest spikes and drops in short interest are shown in sector tables and charted on pages 2 – 5. Notable spikes in Health Tech are Exact Sciences Corp. (EXAS), Insys Therapeutics (INSY), Mallinckrodt (MNK), Auxilium Pharma (AUXL), Aegerion Pharma (AEGR) and ABIOMED, Inc. (ABMD). Tech Services offered up a host of new short interest names as well. Names include Trulia (TRLA), Tableau Software (DATA), YY, Inc. (YY), Citrix Systems (CTXS), NeuStar, Inc. (NSR), Yelp (YELP) and 58.com (WUBA).
