Makers of telecommunications equipment were the hardest hit, with Metromedia Fiber, JDS Uniphase and Tellabs leading the list of shorted stocks.
According to the Nasdaq, short interest rose to 4.17 billion shares in September from 4.06 billion shares in August, hitting record levels for the fourth 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, because short-selling investors will eventually have to buy shares to cover their positions.
This month's short selling has come under scrutiny by more than just investors. The FBI, the Securities and Exchange Commission, and other law enforcement and regulatory agencies have been examining short-selling records to see whether terrorists tried to profit off the attacks on New York and Washington, D.C., earlier this month.
The September data covers all short interest positions reported between Aug. 16 and Sept. 11 and settled as of Sept. 14.
Metromedia Fiber Networks saw the largest increase in the number of shares shorted, rising from 27.07 million in August to 42.76 million in September. The maker of high-speed fiber-optic networks has suffered along with the rest of the telecommunications sector and was scraping together financing earlier this month that let it avoid bankruptcy.
Short sellers made the right bet on this stock; shares closed at 66 cents Aug. 16 and fell to 45 cents by Sept. 10.
JDS Uniphase saw its short interest levels rise from 35.35 million in August to 46.62 million in September. The telecommunications equipment maker posted a major loss in July, and its outlook hasn't looked much brighter since then; it said last week that it would write off $5.3 billion more long-term assets for the fiscal year. But the company did hold out some hope, with executives saying this week that there were some signs the industry was stabilizing.
Shares closed at $8.18 Aug. 16 and fell to $6.21 by Sept. 10.
Short interest in Tellabs rose from 11.36 million in August to 19.38 million in September. The company eliminated 1,000 jobs in August, closing a plant in Ireland, and canceled plans for a new plant in Massachusetts. Tellabs is also tied in a legal squabble with fellow equipment maker Riverstone Networks over a contract involving sales of high-speed network routing devices.
Tellabs shares closed at $14.45 on Aug.16 and sank to $10.93 by Sept. 10.
Rounding out the top five, short interest in Sanmina rose from 19.56 million in August to 26.15 million in September, and short interest in Nextel Communications went from 42.14 million in August to 47.88 million in September.
Exodus Communications led the list of companies that saw the largest decrease in the number of short interest sales, falling from 87.89 million in August to 75.82 million in September. Shares closed at $1.54 on Aug. 16 and fell to 34 cents by Sept. 10. The Web-hosting company filed for bankruptcy earlier this week.