Short sellers are feeling cocky enough to take on the 'meme' investors again. But they're picking their spots more carefully this time.
It's been roughly a year since meme stock investors flooded into highly shorted stocks like GameStop and Bed Bath & Beyond. Shorts got pounded when stocks they bet against soared instead and caused them to suffer large losses. But now, the shorts starting to get the upper hand again.
The most highly shorted decile of stocks in the broad Russell 3000 are down nearly 15% this year so far, says Bespoke Investment Group. "Highly shorted names keep falling," Bespoke said. That's good news for short sellers that score big profits when stocks they're betting against fall in value. Meanwhile, the least shorted decile of stocks are down the least this year, says Bespoke.
And that's only further emboldening shorts to take on the meme investors. "Short interest has been on the rise throughout the past year and rose another 0.2 percentage points versus the last report with data through mid-January," Bespoke said. "On an aggregate basis, 5.48% of shares in the Russell 3,000 have been sold short."
Shorts Are Winning In Russell 3000
Stocks in the most-shorted deciles are down the most
| Short decile as % of float | Stocks' YTD % ch. |
|---|---|
| 1 (least shorted) | -4.37% |
| 2 | -6.34 |
| 3 | -4.57 |
| 4 | -4.08 |
| 5 | -6.06 |
| 6 | -7.68 |
| 7 | -9.8 |
| 8 | -10.57 |
| 9 | -12.97 |
| 10 (most shorted) | -14.96 |
Source: Bespoke Investment Group
The S&P 500 Sector With The Most Short Selling
Short sellers, though, clearly learned a lesson from the whipping they got last year at the hands of Wallstreetbets. They're dipping their toes in sectors they think they can win.
Shorts, in particular, are piling into the consumer discretionary sector, says S&P Global Market Intelligence. "The biggest jump in inflation in 40 years has driven short sellers to increase their bets against consumer discretionary stocks to the highest level in over a year," S&P Global said.
Eight of the 20 most shorted stocks are all in the consumer discretionary sector. And six of the top 10 most shorted stocks in the S&P 1500, based on float, are in the sector. Bed Bath & Beyond, for instance, is the second most shorted S&P 1500 stock at more than 32% of its shares trading in the control of shorts.
Meanwhile, short interest in S&P 500 energy firms hit 4.04% in January, the highest level since mid-October.
Why Shorts Are Still Nervous
Shorts are getting more bold, and it's mostly working out for them in most cases. But Bed Bath and Beyond is an example of why shorts are still not as gutsy as they were. Shares of Bed Bath & Beyond are up more than 14% this year, serving up losses to anyone betting the shares would fall.
And that's why shorts are still jittery, especially among larger stocks. Short interest in the S&P 500 fell to 2.11% through the end of January, down from 2.94% two years ago, S&P Global says.
Meme investors haven't entirely given up. Three of the 10 most shorted S&P 1500 stocks are up this year. And they're only down 2.2% this year on average, which is better than S&P 500.
Looks like the war with shorts isn't quite over just yet.
Most Shorted S&P 1500 Stocks
| Company | Symbol | Stock price YTD % ch. | Short Interest now of float | Sector |
|---|---|---|---|---|
| Apollo Medical | -19.6% | 44.8% | Health Care | |
| Bed Bath & Beyond | 14.3 | 32.2 | Consumer Discretionary | |
| iStar | -0.8 | 25.7 | Real Estate | |
| PetMed Express | 4.1 | 24.8 | Consumer Discretionary | |
| iRobot | -1.9 | 24.3 | Consumer Discretionary | |
| American Eagle Outfitters | -9.8 | 23.8 | Consumer Discretionary | |
| Haverty Furniture | -3.9 | 23.1 | Consumer Discretionary | |
| Dick's Sporting Goods | -0.5 | 22.8 | Consumer Discretionary | |
| Cinemark Holdings | 13.8 | 21.7 | Communication Services | |
| Zynex | -17.7 | 21.6 | Health Care |
