According to the Nasdaq, short interest rose to 4.06 billion shares in August from 4.01 billion shares in July, setting a new record for the third month in a row.
Investors who short stocks sell borrowed shares, hoping that the price will drop before they have to buy shares to cover their accounts. Short interest is the total number of shares on the Nasdaq that have been sold short but not yet settled up.
Short selling often reflects investor opinion that a stock is about to sink. But an increase in short selling can often presage a rise in a stock's price, since short-selling investors will eventually have to buy shares to cover their positions.
The data covers all short-interest positions reported between July 16 and Aug. 10 and settled as of Aug. 15.
For the second month in a row, Exodus Communications saw the biggest volume increase in its short interest, rising from 61.25 million shares in July to 87.89 million shares in August.
The embattled Web infrastructure company has just indicated that it's now ready to entertain takeover offers. The news followed the resignation of three of the company's 10 board members, a plunging stock price and continuing questions about its ability to survive.
More bad news seems likely: Exodus dipped below the $1 mark--a warning flag for possible delisting--on Aug. 27, and has lost more than 98 percent of its value since hitting its 52-week high last September. But the investors who shorted the stock this late in the game may not have been able to reap the rewards; shares closed at $1.36 July 16 and rose slightly to $1.41 by Aug. 15.
Struggling dot-coms aren't the only companies shorted by investors, however. The company with the second-largest increase in short interest during the month was chip giant Intel, which saw short interest rise from 74.88 million shares to 93.19 million shares. Its share price also went up during the period, closing at $29.13 July 16 and rising slightly to $29.78 by Aug. 15. During the month, Intel posted second-quarter results that topped analysts' expectations but reflected a 76 percent drop in net income from the prior year.
Intel scored a major public relations coup when IBM announced it would stop using competitor Advanced Micro Devices' chips in its PCs sold in North America. Analysts are still locked in a battle over when the chip market will hit bottom.
Short interest in Cisco went from 84.89 million shares to 96.25 million shares. Cisco reported an 86 percent drop in profits for the fourth quarter, with CEO John Chambers saying at the time that he wasn't quite sure the networking market had reached bottom. Since then, the company has announced a major reorganization, and Chambers has stated that he sees business stabilizing. Shares closed at $17.71 July 16 and fell to $17 on Aug. 15.
Rounding out the top five increasers, PMC-Sierra saw an increase in short interest from 10.07 million shares to 20.79 million shares, while short interest in Metromedia Fiber Network rose from 18.39 million shares to 27.07 million shares.
Nextel Communications led the list of companies that saw the largest volume decrease in short interest, dropping from 48.45 million shares in July to 42.14 million shares in August.