Wall Street's bears have turned more cautious recently, despite the market's pullback since mid-May.
Short interest on the New York Stock Exchange--the number of shares borrowed and sold, usually in a bet on lower prices--rose 1.2% from mid-May to mid-June, the smallest increase this year, the NYSE said Thursday.
Total short interest was 5.58 billion shares as of June 15, up 64.6 million shares from mid-May.
Bearish traders had sharply boosted their short selling of NYSE stocks between mid-February and mid-April amid the market's steep decline. NYSE short interest rose 3.3% between mid-February and mid-March and shot up 7.2% between mid-March and mid-April.
Even as the market rallied between mid-April and mid-May NYSE short interest rose 2.5%.
But stocks' weakness since mid-May--the Standard & Poor's 500 index fell 2.8% from May 15 to June 15--wasn't accompanied by the same short-selling fervor of winter and early spring. That could mean that more bears believe stocks are poised to rally.
In a short sale, a trader borrows stock from a broker and sells it in the open market. The bet is that the stock's price will decline, allowing the trader to buy back shares at a lower price later to repay the loan.
If the stock indeed falls, the short seller's profit is the difference between the sale price received and the price paid to buy back the shares. If the stock rises, however, a short seller can incur huge losses.
Heavy short selling can contribute to a falling stock market. But a large short position in an individual stock also can be bullish: If the stock rises rather than falls, short sellers may rush to buy back the shares to close out their bets, adding fuel to the stock's rally.