Short interest figures for the middle of October were released earlier this week, and while short interest levels declined modestly, the performance of the most heavily shorted stocks continues to suffer.  The table below is from our semi-monthly update on short interest figures for stocks in the S&P 1500 (sample), and it shows all the stocks in the index with more than 25% of their free-floating shares sold short.  As of the most recent data, 45 stocks in the index meet the criteria.  For each stock listed, we have also included its performance so far in October.  As shown at the bottom of the table, the average performance of the stocks listed is a gain of 5.71% (median: +4.95%).  That doesn’t sound so bad, but when you consider the fact that the S&P 1500 is up 8.3% over this period, the most heavily shorted stocks are underperforming by a wide margin.

While it’s normal for stocks with high levels of short interest to underperform the broader market when the market is falling, in rallies like the one we have seen in October, you would expect these stocks to outperform.  This time around, that has been far from the case.  Not only are the most heavily shorted stocks underperforming the market during this rally, but a lot of them are outright down on the month.  Of the 45 names listed, 19 are actually in the red.

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