February short interest

by: David Jackson

Short interest in Nasdaq stocks rose by 6.3% month over month in February. But short interest for Nasdaq Internet stocks rose by more: on a basket of 25 Internet stocks tracked by American Technology Research, short interest  rose by 10.4%. Details:

Internet stocks with the largest change in short interest (versus January):

  1. HOMS (+41%)
  2. ELNK (+33%)
  3. LOOK (+32%)
  4. OSTK (31%)
  5. CNET (+29%)
  6. NILE (26%)
  7. TZOO (-26%).

Internet stocks with highest short interest as % of float:

  1. OSTK (48%)
  2. TZOO (45%)
  3. NFLX (42%)
  4. PCLN (39%).

American Technology Research analyst Mark Mahaney wrote to clients:

The large-cap Internet stocks remain among the most heavily shorted stocks on NASDAQ. Ranked in terms of total shares short, YHOO ranks #5, IACI #11, AMZN #19, and EBAY #31...

The positions that strike us as the most interesting are: 1) material increase in overall short interest, both for our basket of 25 Internet stocks and for the NASDAQ as a whole; 2) GOOG -- absolute short interest was up 18% M/M to a record high 13.8MM shares, although much of this increase is likely due to the expiry of the final share lock-up; 3) EBAY -- absolute short interest was down 13% M/M and at its lowest level in over two years; 4) ASKJ -- absolute short interest was up 25% M/M and at its highest level in over two years; and 5) NILE -- absolute short interest was up 26% M/M to a record high 2.5MM shares.

Quick comment: Rising short interest is usually a bullish indicator, as short interest is pent-up buying demand. (Short positions need to be covered - eventually.) Excessive short positions as a percentage of float can also lead to "short squeezes", in which investors are forced to purchase stock they have sold short.