Short Interest on Nasdaq Climbs 5%

Bearish traders have been boosting their bets that Nasdaq-listed stocks are heading lower.

The Nasdaq market said Tuesday that short interest -- the number of shares borrowed, sold and not yet replaced -- rose 5% between mid-May and mid-June to a record high.

The total number of shorted Nasdaq shares was 4.604 billion as of June 13, compared with 4.386 billion on May 15.

The previous record was 4.456 billion as of mid-April.

The data indicate that many Wall Street bears were undeterred by the strong market rally between mid-May and mid-June that lifted the Nasdaq composite index about 5.7%.

In a short sale, a trader borrows stock, usually from a brokerage’s inventory, and sells the shares in the open market, betting that the price will decline.

If the bet is correct, the trader can buy back the stock later at a cheaper price to replace the loaned shares. The trader’s profit would be the difference between the original sale price and the repurchase price.

But if the market price of a shorted stock rises instead of falls, short sellers potentially face unlimited losses until the trades are closed out. Their buying at that point can help drive up stock prices.

The stock market’s advance this spring has lifted many of Nasdaq’s major technology stocks to their highest levels in at least a year. Market bears argue that prices have risen too high relative to many companies’ earnings prospects.

The New York Stock Exchange said last week that the number of shorted NYSE shares rose 2.3% between mid-May and mid-June.