As we highlighted in a post yesterday, the relative strength of the 100 stocks with the highest levels of short interest against the Russell 3000 has broken its downtrend. This downtrend had been in place since the end of the meme stock mania in January of 2021. Just to refresh your memory, that chart is provided below.
Today, we took a look at the 20 Russell 1000 stocks that have seen the largest increases in short interest as a percentage of float (SIPF) on a year to date basis. Leading this group is Upstart (UPST), the buy now pay later firm that has been decimated as growth stocks have gotten crushed and consumer confidence weakens to historic levels. UPST saw SIPF rise by 27.1 percentage points on a YTD basis and by an additional 2.0 percentage points in June. Notably, UPST appeared on our Top 20 P/S Decliners list as well, which we published yesterday. Unity Software (U) is the only other name to appear on both lists. The largest names on this list by market cap are GlobalFoundries (GFS), Ubiquiti (UI) and Rocket (RKT).
The performance of these twenty names has been quite weak on a month over month and YTD basis. Additionally, these names have massively underperformed the broader index since the end of the meme stock mania, trading down by 48.7% on average (median: -63.3%) compared to the Russell 1000’s loss of just 1.1%. On a YTD basis, these stocks have shed 44.1% of their value on average, which was accelerated by a 12.6% average loss since the end of May. Although it’s difficult to find any positivity in these names, they are primed for short squeezes or reversals as shorts cover their positions (which forces buying. Click here to learn more about Bespoke’s premium stock market research service.
The first quarter of last year was marked by a period of massive short squeezes leading to outperformance of stocks with high levels of short interest. A little over one year later, the opposite has held true. As shown below, the stocks with the highest levels of short interest at the time of the last all time high on January 3rd have been the worst performers over the past few months. The decile of Russell 3,000 stocks with the highest levels of short interest at the start of the year have fallen 21.5% since January 3td while the first four deciles of stocks with the lowest levels of short interest have only fallen mid-single digits.
The latest update of short interest data through the end of March hit the tape earlier this week. The average level of short interest as a percent of float for all Russell 3,000 stocks fell sequentially from the mid-March update but with an average short interest reading of 5.78%, current readings are roughly half of one percentage point higher than at the start of the year.
Breaking it down by industry group, retail has seen the biggest increase in average short interest and now has the highest level of any industry group. Autos are the runner-up in both departments as short interest has climbed from 8.2% on January 3rd to 9.75% today. Utilities, Banks, Insurance, Commercial and Professional Services, Materials, and Real Estate, meanwhile, are on the other end of the spectrum as the only sectors with short interest as a percentage of float below 4%.
Turning to individual stocks, Rent the Runway (RENT) now has the most elevated level of short interest as the only stock in the index with over half of its free-floating shares sold short. Conn’s (CONN), however, comes close with 49.16% of its float sold short. Both stocks have seen sharp increases in bearish bets this year as those readings compare to 26.82% and 14.58%, respectively for RENT and CONN. Most of these heavily shorted names have been pain trades this year, but there are a small handful of exceptions. Gogo (GOGO) and Arch Resources (ARCH) have seen substantial rallies of 66.3% and 72.45%, respectively, as the broader market has pulled back. While not as strong of a performance, Dillard’s (DDS) has also rallied solidly gaining 16%.
As previously mentioned, CONN finds itself near the top of the list of the most heavily shorted Russell 3,000 stocks, but it has been the one with the largest increase in short interest of the whole index since the January 3rd high. No other name has seen short interest rise by more than 30 percentage points in that time, but MedAvail (MDVL), Rent the Runway (RENT), and Frontier (ULCC) have seen readings rise over 20 percentage points. Click here to view Bespoke’s premium membership options.