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Many people like to follow what institutional and hedge funds are buying, selling and shorting. So I began looking over some Chinese companies that have been making some moves lately. These companies are Sina Corporation (NASDAQ:SINA), Renren Inc. (NYSE:RENN), Dangdang Inc. (NYSE:DANG), Sohu.com (NASDAQ:SOHU), NQ Mobile Inc. (NYSE:NQ) and YY Inc. (NASDAQ:YY).

For any new investors out there, short interest is an indicator of what short sellers think about a particular stock. Selling a stock short is a practice of selling securities that are not currently owned, with the intention of buying them back (covering) at a lower price. Short sellers assume that they will be able to buy the stock back at a lower price than when they first paid for it.

If short interest increases, then shorts are betting that the price of the security will be going down. However, if short interest decreases, then shorts are betting that the price of the security is near the bottom and will likely be going back up. Many investors use short interest to make predictions about the direction of a particular stock and to measure the bullishness or bearishness of it. Below is a table of the short interest increases and decreases of the following companies.

SINA RENN DANG SOHU NQ YY
5/15/13 3,135,725 4,309,942 2,332,044 2,046,334 4,543,812 752,476
4/30/13 1,694,944 3,911,468 2,306,319 1,853,170 4,495,586 703,482
4/15/13 1,814,052 3,814,105 2,211,305 1,854,184 3,905,028 635,170
3/28/13 1,874,279 3,085,869 2,491,679 2,213,560 3,602,091 558,101
3/15/13 2,476,917 3,562,967 3,803,229 3,136,678 2,993,243 473,661

As you can see from the table above, short interest has been increasing in these stocks. Why is this so? There could be many different reasons as to why, so a good question to ask yourself in this situation is what do the shorts know that you don't. Let's take a look at the companies to see what has transpired for the increase in short interest.

E-Commerce China Dangdang

Dangdang operates as a business-to-consumer e-commerce company in the People's Republic of China. Dangdang was founded in 2000 and its headquarters is in Beijing, China.

Dangdang has a market cap of 480 million with its recent closing price of $5.99 on Wednesday. As of May 15, 2013, DANG had short interest of 2.33 million, representing an increase of over 100K or 6% since April 15, 2013. The short float now stands around 4.31% with the days to cover ratio at 1.17 days. Analysts have an average price target of $6.33 on DANG, which would reflect an increase of about 5% from its recent closing price of $5.99.

(click to enlarge)

* Values are in the millions

Looking over the short interest data over the last couple of months we can see that the short interest in Dangdang has slowed down. Even though short interest has increased over the last two weeks, comparing what has taken place over the last several months up until now shows investors that shorts believe Dangdang has reached its bottom.

Renren

Renren operates a social networking Internet platform in China. The company's platform enables its users to connect and communicate with each other, share information, shop and play online games through its user platform.

Renren has a market cap of 1.14 billion with its recent closing price of $3.02 on Wednesday. As of May 15, 2013, RENN had short interest of 4.30 million, representing an increase of over 500K or 15% since April 15, 2013. The short float now stands around 1.58% with the days to cover ratio at 1.09 days. Analysts have an average price target of $3.10 on RENN, which would reflect an increase of about 3% from its recent closing price of $3.02.

(click to enlarge)

* Values are in the millions

Looking over the short interest data over the last couple of months investors can see that the short interest in Renren is on the rise again. Why is this so? After a better-than-expected earnings report, shares of Renren jumped. However, Renren guided lower that what analysts had expected for the upcoming quarter. Because of this, shorts jumped all over the stock, as a real slowdown for a growth stock like Renren is never a good sign to investors.

SINA

Sina provides online media and mobile value-added services (MVAS) in the People's Republic of China. It provides advertising, non-advertising, and free services through SINA.com, Weibo.com and SINA Mobile.

Sina has a market cap of 3.87 billion with its recent closing price of $58.03. As of May 15, 2013, SINA had short interest of 3.13 million, representing an increase of over 1.5 million shares or 97% since April 30, 2013. The short float now stands around 4.81% with the days to cover ratio at 1.26 days. Analysts have an average price target of $70.00 on SINA, which would reflect an increase of about 20% from its recent closing price of $58.03.

(click to enlarge)

* Values are in the millions

Looking over the short interest data over the last couple of months investors can see that the short interest is on the upswing again for Sina. After a so-so earnings report a couple of weeks ago, it seems as though shorts have taken a significant position of bringing Sina back down. In order to break the trend Sina is going to have to show investors that it can monetize its services better as well as it controls its spending habits.

YY

YY, operates an online social platform in the People’s Republic of China. YY focuses on gaming and web-chat platforms that allow freelance entertainers to become overnight Internet sensations. YY lets its members showcase what they can do in order to attract fan followings. YY currently has over 500 million registered users accounts.

YY has a market cap of 1.49 billion with its recent closing price of $27.35. As of May 15, 2013, YY had short interest of 752,476 representing an increase of over 100K or 18% since April 15, 2013. The short float now stands around 24.43% with the days to cover ratio at one day. Analysts have an average price target of $22.20 on YY, which would reflect a decrease of about 18% from its recent closing price of $27.35.

(click to enlarge)

* Values are in the hundred thousands

Looking over the short interest data over the last couple of months investors can see that the short interest has increased dramatically in YY. Do shorts think that the ride is finally over? Since the start of the year, YY has rewarded investors with a gain of over 84%. However, it seems as though shorts are betting with both hands that YY won't be able to keep up its stellar growth. Only time will tell who is right between the bulls and the bears.

Sohu

Sohu provides a variety of things such as online search, media, gaming and mobile services in the People’s Republic of China. Sohu was founded in 1996 and its headquarters is in Beijing, China.

Sohu has a market cap of 2.44 billion with its recent closing price of $63.92 as of Wednesday. As of May 15, 2013, Sohu had short interest of 2.04 million, representing an increase of almost 200K or 14% since April 15, 2013. The short float now stands around 6.83% with the days to cover ratio at 1.90 days. Analysts have an average price target of $56.50 on Sohu, which would reflect a decrease of about 12% from its recent closing price of $63.92.

(click to enlarge)

* Values are in the millions

Looking over the short interest data over the last couple of months investors can see that the short interest has been on the decline as of late as shorts have been wiped out of their positions. Many were forced out after media speculation ran rampant weeks ago suggesting that Sohu's search engine business (Sogou) was a takeover target of Chinese internet companies in Baidu (NASDAQ:BIDU) and Qihoo (NYSE:QIHU).

NQ

NQ is a leading global provider of mobile Internet services in the areas of mobile security, privacy and family protection. NQ was founded in 2005 and its headquarters is in Beijing, China.

NQ has a market cap of $402 million with its recent closing price of $8.00 as of Wednesday. As of May 15, 2013, NQ had short interest of 4.54 million, representing an increase of over 600K shares or 17% since April 15, 2013. The short float now stands around 16% with the days to cover ratio at 6.30 days. Analysts have an average price target of $17.00 on NQ, which would reflect an increase of about 112% from its closing price of $8.00 as of Wednesday.

(click to enlarge)

* Values are in the millions

Looking over the short interest data over the last couple of months investors can see that the shorts are betting on another great fall from NQ. However, NQ has still rewarded investors with a nice gain of over 30% since the start of the year. NQ even beat analyst expectations last quarter and shorts have still been piling on. Were investors let down because the company didn't beat the high expectations they had? NQ already beat analyst expectations and raised future guidance for the upcoming quarter. What more could you ask for in a company? I believe that shorts will start to cover in this price range as it becomes risky at these oversold levels.

Conclusion

Many investors use short interest to make predictions about the direction of a particular stock and to measure the bullishness or bearishness of it. Investors that can identify the trends from the short interest figures stand to greatly benefit from it.

Investors are always reminded that before making any investment, you should do your own proper diligence on any stock mentioned in this article. Have a great day and as always, I look forward to hearing your thoughts or questions that you might have.

Disclaimer: The information that I used in this article came from Nasdaq.com, Yahoo!Finance, CNNMoney, Scottrade and Finviz.com.

Source: See What Happened To Short Interest In These Chinese Stocks