Is there any reason to be bullish on Internet stocks? You wouldn't think so if you looked at the short interest in some key names. Amazon.com's (NASDAQ:AMZN) short interest recently reached a record high, according to Mark Mahaney, an analyst at Citigroup. Hence the huge spike in the online retailer's shares after the company released a third-quarter report card that wasn't a disaster.
Bankrate (NYSE:RATE) is the No. 1 ranked stock, as measured by stocks with the highest short interest as a percentage of their float. The others include (in order of largest percentage to lowest) Blue Nile (NASDAQ:NILE), Audible (ADBL), WebMD (NASDAQ:WBMD), Netflix (NASDAQ:NFLX), Amazon, Priceline (NASDAQ:PCLN), CNet Networks (NASDAQ:CNET), ValueClick, Yahoo (NASDAQ:YHOO), FTD, InterActiveCorp (IACA), Expedia (NASDAQ:EXPE), eBay, Google (NASDAQ:GOOG) and Monster (NASDAQ:MNST).
Now, does short interest matter if this is data from last month? Well, yes, since it can help explain upward movements that may be seen as bullish. Here's what my hedge-fund friend says:
"In my opinion, a great deal of the reason for the upward recent movement in the stock market has come as portfolio managers chase yearend performance which causes hedge funds to have to cover their large short positions, which then forces more money managers into the market, which forces even more short covering. It's a virtuous cycle and it just about always happens this time of year (the season of greed).
"Given the geopolitical backdrop (Iraq on brink of civil war, Republicans about to lose control of Congress, housing bubble slowly popping, and earnings across the board at all-time highs), I don't think there are too many money managers who are genuinely that bullish right now, but ALL of them need to make their numbers and beat their respective index before yearend to keep their jobs, so if the market keeps moving higher, it forces them to have to jump in, and it forces the hedge funds with short positions to cover and go long to participate as well."