In market lore, the shorts always seem to find themselves as scapegoats for market movements. If the market is going down, it’s because the shorts are piling on. When the market is going up, it’s because the shorts are scrambling to cover. So, with the S&P 500 currently up 18% year to date, it shouldn’t be a surprise that a popular story-line is that the rise has been fueled by squeezed shorts. In order to help gauge the validity of that claim, below is the year to date performance of the 20 S&P 500 components which had the highest short interest coming into 2013.
If you had been prescient enough to buy a basket of these 20 companies at the start of the year, you’d be beating the S&P 500 by a fairly sizable amount–an equal weighted portfolio would currently be up 29.7%. $NFLX and $GME are two stocks that would have powered that portfolio, up 168% and 82% respectively. That does suggest that companies with higher short interest may be helping the market higher; however, it’s worth noting that short interest in these companies hasn’t dropped significantly to go along with the out performance. The average short interest for this sample currently sits at 17% of shares outstanding vs. 20% at the start of the year.
Source: Compustat Data.