Despite, or because of, the market's gyrations, larger caps are outperforming (falling less than) smaller caps month-to-date. Call it a flight to quality. Yet, Large Cap Growth (high PE) stocks are doing better still. In my mind, "quality" has something to do with a good ratio of Price to Earnings, Sales, Book Value, etc., rather than sky high valuations. Despite their margin of safety, Value stocks have been getting pounded tempering my Long/Short approach. Seems to me that if the market and economic outlook is sketchy, you'd want to go for caution (Value) rather than hype (Growth), but what do I know. For now, Largecap GARP is in (relative) favor.
Yes, I have a Value-bias long and a "Over-Valued"-bias short, but that's a bit simplistic. Stocks with improving earnings expectations and good earnings growth are beating stocks without those attributes, which helps my strategy, and the most-shorted stocks are indeed lagging the market. Perhaps this is a snap back after last month's quant- and hedge fund fiascos - the cover-pressures have subsided and these heavily shorted stocks with poor fundamentals are back to lagging the market.
Another interesting short item is that many of the the most-shorted stocks are REITs. Looks like hedge funds and other bearish investors are betting on a continued fall in this industry, and typically this wager is often right, both absolutley (outright price decline) or relatively (rise less than the market). Looks like REITs might stay under pressure for awhile. Remember though, being short a REIT means you have to pay out the often sizeable dividend, and for this group it's around 5%, so you need some more big declines to offset that cost.