Tough Times for Short Sellers in this Bull Market

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This market is not being kind to shorts.

In fact they're getting buried, according to research done by Paul Hickey of Bespoke Investment Group, who looked at the 25 stocks in the S&P 1500 with the highest short interest as a percentage of float.

There are a lot of household names on that list: Coinstar, J.C. Penney, GameStop, and United States Steel, among others.

But some of these very names, which the shorts bet would head lower, actually bounced higher. Since April 30th, J.C.Penney, GameStop and SUPERVALU are all up double digits.

Overall, the 25 most shorted stocks, as of yesterday, have enjoyed a collective bounce of 6.7 percent, which is nearly three times the gain of the S&P 1500.

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And this doesn't even include shares of Tesla, which is already up some 70 percent in May. The stock has some 40 percent of its float sold short. But Tesla is not currently a member of the S&P 1500.

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Hickey explains that it's been basically bad timing on the part of the shorts. The market keeps moving higher, so more investors are willing to step into the riskier names. Also, he says, with earnings season basically over, some of these companies reported better-than-expected results. Tesla, for instance, posted its first ever quarterly profit.

Hickey does offer a word of caution, however: highly shorted stocks are very volatile. Such stocks tend to do best when the market is rising, the strategist points out, but also tend to lag when the market falls.

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Regardless, this could all be bad news for some investment managers. As Hickey says, unless the market changes course in the coming weeks, a lot of bearish portfolio managers may find themselves with dwindling assets under management, or completely out of a job come summer.

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