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Short sellers built their large-cap exposure over the past month. The average days to cover held short increased by nearly a day, with the biggest expansion occurring in services and financials.

This helped market volume move higher, as short sellers remain a key source of liquidity. S&P 500 average daily volume is 1.5% higher this month than last. And while it may seem volume is especially light in December, it's not. So far, average daily volume is 10.6% higher than December 2010 and just a shy higher than December 2009.

To get clues into where pessimism is too high, growing or shrinking, E.B. Capital Markets, LLC ran the numbers to see where big changes are occurring. Not surprisingly, money center banks - those most exposed to European contagion risk - saw the biggest jump in short interest over the past month. Money center short positions increased an average of 1.67 days to cover to 3.89 with Royal Bank of Canada (NYSE:RY) jumping 10 days to 18 days to cover on rising fears slowing economic growth in Canada will weigh on housing markets next year.

Industrial equipment also saw a marked increase. Short interest for equipment stocks, which are vulnerable on weaker European demand, rose 1.33 to 3.67 days. Restaurants, which shorts bet will get hurt by a post-holiday spending hangover, saw short interest increase by a day to 3.75. Both Darden (NYSE:DRI) and Chipotle (NYSE:CMG) saw increases of two days, bringing short interest to six and five days to cover, respectively.

Savings and loans, such as New York Bancorp where short interest climbed two days, saw short interest rise over a day on average, to 3.67 days to cover. Short sellers also increased bets against wireless communications stocks. In particular, the biggest increases came in foreign wireless stocks, including Deutsche Telecom (OTCQX:DTEGY) and Telus (NYSE:TU).

As for where shorts were covering, the biggest drop in days to cover occurred in scientific and technical instruments, with Garmin (NASDAQ:GRMN) days to cover falling four to 17 as the stock broke out to new highs and squeezed sellers. Domestic telecom also saw covering into the AT &T (NYSE:T) and T Mobile failed merger. Both Frontier (NASDAQ:FTR) and CenturyLink (NYSE:CTL) saw short interest shrink. Sellers also reined in exposure to department stores, such as Sears Holdings (NASDAQ:SHLD) which made a new 52-week low Monday.

Large Cap Short Interest by Industry: Increased

Days Short Industry Change
3.89 Money Center Banks 1.67
3.67 Industrial Equipment & Components 1.33
3.67 Savings & Loans 1.33
3.22 Wireless Communication 1.22
3.75 Restaurants 1

Large Cap Short Interest by Industry: Decreased

Days Short Industry Change
7.33 Scientific & Technical Instruments -1
3 Telecom Services - Domestic -0.75
6 Department Stores -0.40
2.67 Food- Major Diversified -0.33
Source: Short Sellers Boosted Large-Cap Bets In Past Month