3 Dow Stocks with High Short Interest

Caterpillar, Alcoa, and Merck lead the Dow in short interest as a percent of shares outstanding.   Compared to an average short interest of 2.2% for all Dow components, bets against these three companies stand at around 8%, according to data compiled by CNBC.  

The stock market's rally from its March 9 low pushed short interest lower for most companies, as a short squeeze forced many investors to buy back shares and cover their positions.  Interestingly, average short interest on the Dow, has remained relatively unchanged for most of the year.

Although the Dow has climbed 41% since early March, short interest in Merck , the New Jersey-based drugmaker, jumped 6.7 percentage points since the beginning of the year to 7.9%, on 165.9M shares.  Bets against Illinois-based Caterpillar , a manufacturer of construction and mining equipment, climbed 3.4 percentage points since early January to 8.0%, on 49.5M shares.  While short interest has dropped about half a point for Pennsylvania-based Alcoa , a world producer of primary aluminum, wagers against the company's shares remain at 7.9%, or 76.9M shares in 2009. 

A large increase in short interest is usually indicative of investor sentiment toward a certain company, and is widely viewed as a bearish signal.  Art Hogan, Managing Director at Jefferies, explained that it is healthy to have some short interest in the market, particularly in sectors that are sensitive to economic cycles.  "A decline in short interest and an increase in insider trading may indicate a market rally may be running out of steam," Hogan told CNBC.   When asked about the three Dow components with the highest short interest, Mr. Hogan advised us to compare them to their peers rather than the rest of the Dow.

Merck's short interest, for example, is currently at 7.9%, compared to 1.2% for Schering Plough , 1.0% for Wyeth , 1.0% for Bristol Myers Squibb , and 2.4% for Eli Lilly . 

Caterpillar is another instance where short interest on the company's shares is higher than some of its peers.  Short interest on Deere and Cummins stands at 2.4% and 2.1% respectively, while short interest on Caterpillar stands at 8%. 

The table below shows the latest percent of short interest for all Dow components. 

Note: Short interest calculated as of August 17.

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