No matter how far down bank stocks go and how hard regulators try to keep short sellers out of financial shares, some of the smart money is willing to gamble that the fortunes of the sector will get worse.

As of the end of November, short piled into Citigroup (C) driving up shares short by 44% to 182.5 million. In Bank of America (BAC) short interest rose 20% to 110 million shares. Short interest in Ambac (ABK) moved up 26% to 60.8 million. Shares sold short in US Bancorp (USB) and Colonial (CNB) were both up over 20%. The short interest in Morgan Stanley (MS) was also up almost 20%.

Surprisingly, short sellers left shares in the large, troubled industrial companies alone. Shares short in GM (GM) fell 2% to 113.1 million. The short interest in Ford (F) dropped 5% to 251.4 million.

Shorts were also unwilling to bet against large retailers. Share short in Wal-Mart (WMT) were down 2% to 48.8 million. Shares sold short in Target (TGT) dropped 9% to 47.4 million.

Short sellers were also willing to hold large positions in tech companies. The short interest in Oracle (ORCL) was up 19%. Shares short in Yahoo! (YHOO) were up 24%. Shares sold short also rose at Microsoft (MSFT), Intel (INTC), Cisco (CSCO), Symantec (SYMC), Sun (JAVA), and Ebay (EBAY) all rose.

Where did the shorts run away and hide? Apple (AAPL), Starbucks (SBUX), and Procter & Gamble (PG). Seems that having a strong brand is valuable after all.

Douglas A. McIntyre

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