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Exodus, Level 3 favorites for short sellers

Investors continue to bet on sinking tech stocks in the midst of a more waterlogged economy, based on data released by the Nasdaq National Market.

Investors continued to bet on sinking tech stocks--especially Exodus Communications, Level 3 Communications and Dell Computer--in the midst of a more waterlogged economy, based on data released by the Nasdaq National Market.

The Nasdaq revealed that short-interest levels rose to 4.01 billion shares sold for July, compared with 3.82 billion for June, setting a new record.

Investors who "short" stocks sell borrowed shares, hoping the price will drop before they have to buy shares to cover their accounts. The short-interest figures are the total number of shares on the Nasdaq that have been sold short but not yet settled up.

Short selling often reflects investors' 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 July figures topped the record set in April. The data cover all short-interest positions reported between June 18 and July 10 and settled as of July 13.

• Exodus saw the biggest volume increase in its short interest, rising from 29.14 million shares in June to 61.25 million shares in July.

It was a good call by those short sellers. The Web infrastructure company has suffered as analysts questioned its ability to survive in a difficult economic climate.

Shares of Exodus, which reported a loss of $583.4 million, or $1.05 per share, for the second quarter, have flirted with falling below the $1 mark. The stock has lost a staggering 98 percent of its value since hitting its 52-week high last September. Shares closed at $3.62 on June 18 and dropped to $1.31 on July 13.

Short selling breaks records
Investors shorted more stocks in July than in the previous record-breaking month of April, according to a new report by the Nasdaq National Market.
Name Symbol % change

Top 5 volume increases*:
Exodus Communications EXDS 110
Level 3 Communications LVLT 34
Dell Computer DELL 25
Oracle ORCL 22
XO Communications XOXO 45

Top 5 volume decreases*:
360networks TSIXQ -37
Webvan WBVN -59
Sovereign Bancorp SVRN -100
WorldCom WCOM -25
Intermedia Communications ICIX -100
*For period ending July 13 
Source: Nasdaq
•&nbspShort interest in another Net infrastructure company, Level 3, went from 42.39 million shares in June to 56.6 million in July. Level 3, which sells high-speed communications services, saw its net loss widen in the second quarter as customers delayed purchases or cut them altogether amid the economic slowdown. Shares dropped from $5.97 on June 18 to close at $3.65 on July 13.

•&nbspShort interest in Dell rose by 10.65 million shares to 52.83 million in July. Short sellers may have made a bad call here, as the stock price rose from a close of $23.92 on June 18 to $27.95 on July 13. While sales of PCs have been in a slump, Dell has looked for other ways to bring in the bucks, including entering the network-equipment market. And unlike many of its PC brethren, Dell claims it can tough it out through the slow PC market, recently reaffirming its earnings outlook for the second quarter.

•&nbspRounding out the top five increasers, Oracle saw a rise in short interest from 47.45 million shares to 57.83 million, while short interest in XO Communications rose from 21.56 million shares to 31.23 million.

• Intermedia Communications led the list of companies that saw the largest volume decrease in short interest, dropping from 23.04 million shares in June to none in July. The voice and data services company was purchased by WorldCom earlier this month.

WorldCom itself had the second-largest volume decrease in short interest, dropping to 20.09 million shares from 60.49 million. The company's shares went from a close of $14.99 on June 18 to $14.50 on July 13. The data and Internet business recently recorded an 85 percent drop in second-quarter profits.