Is It Time to Sell These Eight Stocks?

While the stock market continues to trade sideways, some investors seem to be turning negative on a number of S&P 500 stocks.

The latest data on short interest, the total number of shares of a security that have been sold short expressed as a percent of total tradable shares, depicts that this metric increased in the past months for a number of companies, including Mylan , Zions Bancorp and United States Steel .

In a short trade, investors bet that the price of a stock will fall. Short-sellers borrow shares and then sell them, hoping to repurchase the stock at a lower price. Depending on the stock's performance after the transaction, short-sellers repurchase the stock at the new price, return it to the lender, and pocket or pay the difference.

Among the most shorted stocks in the S&P index, First Solar , a manufacturer of solar electric power modules, leads the list, with its short interest as a percent of float -shares available to trade- standing at 28%.

Investors tend to track short interest levels to gain a sense of where a stock might be headed, along with some insight into whether any positive news might force short-traders to cover their positions, pushing a stock higher.

Increasing short interest, in particular, might be indicative of some traders' sentiment towards a certain stock. The chart below includes a sample of eight stocks that have seen their short interest increase since early May 2009.
Stanley Works , for example, a manufacturer of tools and engineered security products, has seen its short interest rise to 20% from 4% back in May last year.

Additionally, the table below includes the stocks with the largest short interest in the S&P 500, as percent of float. Despite the market rally since last year, short interest levels for many of these companies (the ones that are not highlighted) have remained relatively unchanged.

Note that certain companies seeking to raise capital may influence the short interest ratio by issuing new shares, which affects the percent of short interest.

Send comments