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Sun a favorite for "short" sellers

Short selling of stock increased across the board in November, with many investors betting on Sun Microsystems. Whoops.

Technology stocks may be rebounding, but short sellers were betting the gains wouldn't last, according to November short-selling data released by the Nasdaq Stock Market.

According to the Nasdaq, short interest--or the number of shares sold short--rose to 4.17 billion shares in November from 4.06 billion shares in October.

Investors who "short" stocks sell borrowed shares, hoping that the price will drop before they have to buy shares to cover their accounts. If you borrow and sell a share when it's at $40, say, and it drops to $30 before you have to buy it back to repay the loan, you've made $10 on the deal. 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, because short-selling investors will eventually have to buy shares to cover their positions.

That may be what happened last month, as rising values of technology stocks forced short sellers to buy. Indeed, stocks such as have had a strong month courtesy of positive news and short covering. Short interest in Amazon rose 6 percent during the month, from 48.7 million in October to 51.8 million in November.

The November data covers all short interest positions reported between Oct. 16 and Nov. 12 and settled as of Nov. 15.

• The Nasdaq itself saw the largest increase in short selling, as investors continued to gamble that the stock market would tumble. Short interest in the Nasdaq-100 Index rose from 128.5 million in October to 173.9 million in November.

• Among individual stocks, Sun Microsystems saw the largest increase in the number of shares shorted, rising from 27.1 million in October to 40.9 million in November.

But short sellers made the wrong bet on this stock; shares closed at $9.61 Oct. 16 and rose to $13.49 by Nov. 15.

• Intel saw short interest levels go from 77.1 million in October to 90.3 million in November. Shares closed at $24.94 Oct. 16 and climbed to $30.78 by Nov. 15.

• Rounding out the top five, short interest in XO Communications rose from 31.7 million in October to 44 million in November, and short interest in Nextel Communications went from 47.8 million in October to 58.6 million in November.

• Dell Computer led the list of companies that saw the largest decrease in the number of short interest sales, falling from 57.8 million in October to 46.5 million in November. Shares closed at $24.27 on Oct. 16 and grew to $27.69 by Nov. 15.