A simple review of those industry sectors which experienced the greatest average increase in short interest between June 25th and July 10th .

We cannot show the top 12 sectors with short-covering for this latest period,  since there were only four with any overall decrease in average short interest.

Comparison with the previous review,  for July 25th data, shows that Construction Materials, Leisure Equipment & Products. and Pharmaceuticals appear in the top 12 new shorting for a second time;  Beverages appears in the top 12 for covering for the second time;  Tobacco moves from being amongst the top industries for short-covering June 12-25th, to being the second highest for new-shorting in this period.

(The numbers in parentheses show the number of stocks with in each industry sector.   SISO = Short Interest as % of Shares Outstanding.)

With the recent attention being given to Health Care, we used the Square One system to browse and analyze short interest trends in that sector.

We noticed that in the Health Care Equipment & Services sub-sector,  some extreme increases in short interest have taken place in micro-cap stocks.

Asking the system to rank stocks in that sector by new shorting  (as a percentage of shares outstanding) we saw that in the top 10 stocks, only one had a market capitalization of over $250M.  (Although such micro-cap stocks make up roughly a third of the total industry group.)

Comparison of micro-cap shorting in other sectors shows this as exceptional, but a glance at the SISO charts for the top ten stocks speak for themselves:-

(The short interest as a % of shares outstanding is plotted in red against time, with two time-points per month, from May 26th to July 10th. The bars in gray show the average for the stocks sub-industry.)

American Dental Partners (ADPI)	Rockwell Med. Technologies (RMTI)
Bioscrip Inc. (BIOS)	Cutera Inc. (CUTR)
America Service Group Inc. (ASGR)	Allied Healthcare Intl. Inc. (AHCI)
Rochester Medical Corp. (ROCM)	Align Technology Inc. (ALGN)
Utah Medical Products Inc. (UTMD)	Electro-Optical Sciences Inc. (MELA)

Shorting of Real Investment Trusts has picked up across the board  in July – with the exception of Mortgage REITs. Overall REIT short interest is now at a level proportionately higher to the overall market than at this time last year.

A simple review of those industry sectors which experienced the greatest average increase in short interest between June 12th and June 25th – the most up-to-date data available.

(The numbers in parentheses show the number of stocks with in each industry sector.   SISO = Short Interest as % of Shares Outstanding.)

And, those industry sectors which saw the greatest short-covering, on average.

Surprising, some building supply stocks have held up well in spite of the downturn in residential and commercial construction.

That might be due to a delayed impact, with several large suppliers showing heavy new shorting, including Regal-Beloit (RBC, manufactures HVAC equipment and auto transmissions, among other products), USG Corp (USG, makes building materials such as drywall) and Universal Forest Products (UFPI, lumber). Both RBC and USG are heavily levered.

	RBC	USG
Shorting Activity WarningTM
Debt Levels
Liquidity
Free Cash Flow Distress Score
Revenue Growth

As with Building Suppliers, several retail outlets have held up well even though retail sales overall have declined sharply. Short-sellers now believe that the fortunes of these companies will soon share a similar experience with the rest of the retail sector: Dress Barn (DBRN), Joseph A. Bank (JOSB), Children’s Place (PLCE), and HHGregg (HGG).

Short Activity Warning TM
DBRN		Our proprietary Shorting Activity Warning score gives an indication of significant changes in Short Interest in a stock. High scores tend to correlate with future, long-term under-performance of a stock’s price.
JOSB
PLCE
HGG

Wall Street has been enthusiastic about the upcoming aging of American cars. With rising unemployment, high consumer debt, and auto sales in the tank, analysts expect consumers to buy more used cars and drive their current cars longer, which will require more independent repair.

New shorting activity is warning that this is probably an exaggerated theme – consumers can just as easily delay buying used cars as well as making repairs to their clunkers. In particular see Munro Muffler Brake (MNRO), Group 1 Automotive (GPI), O’Reilly Automotive (ORLY), America’s Car Mart (CRMT), and Sonic Automotive (SAH).

	Short Interest as % of Shares Outstanding
MNRO		Stock Sector
GPI
ORLY
CRMT
SAH

This month saw an exceptional rise in a new category:  companies on death watch. These are stocks that now sell for less than $6 per share and have fallen by 90% or more.

Heavy new shorting means that some investors anticipate a high probability of bankruptcy.

All of these stocks carry low bankruptcy Z-Scores, which means they have a significant chance to default.  These stocks include:  Office Depot (ODP), OfficeMax (OMX), ArvinMeritor (ARM), Patriot Coal (PCX), and Huntington Bancshares (HBAN).

	Short Interest as % of Shares Outstanding
OMX		Stock Sector
ODP
ARM
PCX
HBAN