This month, the number of shorted shares on the NYSE reached 3.1% of the total number of shares traded on the exchange. This is the highest percentage since 1931 (just to give you a sense of how long ago that is - in May of 1931 the Empire State Building had just finished construction). The bulls may carry the day though, as shares of the S&P 500 are trading at only 17.8x earnings on average, which is a far cry from the 32.8x earnings S&P 500 shares were trading at on average at the end of the last bull market. As short sellers continue to hold firm, they may continue to eat it, according to Bloomberg:
Hedge funds that focus on shorting lost 35 percent from September 2002 through the end of April, according to the Credit Suisse Tremont Hedge Fund Dedicated Short Bias Index. That compared with an 82 percent gain for the S&P 500 in the same period. The funds are the worst performers this year among 10 hedge fund strategies tracked by the Credit Suisse/Tremont Hedge Fund Index, dropping 1.1 percent.