NYSE April Month-End Short Interest

After the close Tuesday, the New York Stock Exchange released its updated short interest figures for the end of April. Since April 15th, short interest actually increased fractionally, and still remains only 2.4% below its all-time high which was reached right before the Bear Stearns collapse. In the chart below we show the historical short interest for the NYSE since 2003.

As you can see, short interest has steadily risen through the entire period. While rising short interest is typically interpreted as a sign of increased pessimism towards the market, the increase in popularity of hedge funds and long/short mutual funds has caused short interest to have a constant upward bias. However, looking at the trends of overall short interest is still useful to gauge investor sentiment.

For example, in the chart below the red dot represents the levels of short interest when the S&P 500 hit its all time peak. While short interest was not "low" in absolute terms, the fact that it had declined steadily over a three month period indicated that sentiment was becoming increasingly bullish. Unlike the October peak however, short interest during the most recent rally has barely budged. This indicates that there is more skepticism towards the market today than there was back in October.

click to enlarge

Looking at short interest of individual stocks, rather than measuring total short interest we think a more useful indicator is short interest as a percentage of a company's float. With that in mind, in the table below we highlight the NYSE listed S&P 1,500 stocks with the highest short interest as a percentage of float.

As the table illustrates, even though the Consumer Discretionary sector has been the third best performing sector this year, most investors still have doubts about the stocks. Of the 20 companies with the highest short interest as a percentage of float, 15 of them come from the Consumer Discretionary sector. HOV tops the list with 63% of its float sold short. While the backdrop for homebuilders seems bleak, we would note that HOV is up 65% year to date, an has seen significant buying by insiders.