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After a terrible year in 2011 solar stocks are still grappling with low average selling prices and trying to stay afloat. The slashing of government subsidies in Europe has reduced or eliminated profit margins for many solar companies. Of course, this has been great news for solar bears. Those who predicted this collapse and sold short have profited significantly. This trend seems to now be coming to an end as short ratios are starting to decline.

Let’s look at the 10 most-shorted solar stocks, based on the number of shares held short divided by total shares outstanding, along with the estimated number of days to cover:

Company

Ticker

Short Interest

% of Shares

Day to Cover

(in mil. of shares)

Outstanding

1. LDK Solar

LDK

26.5

25.1%

11.7

2. Energy Conversion Devices

ENER

11.8

22.2%

11.5

3. Trina Solar

TSL

16.3

22.2%

10.9

4. First Solar

FSLR

18.7

21.6%

4.2

5. Suntech Power Holdings

STP

17

13.1%

8.4

6. Yingli Green Energy

YGE

13.6

12.5%

8

7. GT Advanced Technologies

GTAT

14.7

11.6%

9

8. Canadian Solar

CSIQ

4.2

9.7%

4.7

9. SunPower Corp.

SPWR

6.2

6.2%

4.3

10. JA Solar

JASO

9.7

5.7%

3.4

Source

As shown in my previous analysis, short ratios for most solars have declined significantly since October 2011. The most significant change in short interest was GT Advanced Technologies sliding down to #7 on the list, going from 24.5 million shares held short to 14.7 million. Also, JA Solar has now made the top-10 list coming in at #10.

As a reminder, short interest may be useful in judging investor sentiment for a particular stock from month to month, and as a comparison with other shorted stocks. This indicator is useful for both bears and bulls – bulls may consider a high-short-interest ratio a positive, since eventually there would be upward pressure on the stock’s price as short sellers cover their short positions. This upward pressure can become very strong if, for instance, a company announces some positive news and forces a number of short sellers to cover at the same time. The days-to-cover statistic is defined as the number of shares sold short divided by average daily volume.

Source: Update: Top 10 Most-Shorted Solar Stocks