It’s a topsy-turvy upside-downsy world

Normally, short sellers have alpha, or skill. Highly-shorted stocks underperform stocks with low short interest. In January, however, the most-shorted stocks have done better than other stocks. See the article by the Bespoke Investment Group over at SeekingAlpha.

One explanation for this reversal (thanks to the reader at SeekingAlpha who pointed this out in his comment) is that because the markets are down so much in January, short covering in the highly-shorted stocks (realizing profits) is adding significant upside pressure, but only to the highly-shorted stocks.

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