Short sellers have decided that the run up in Internet company stocks has reached a peak and they have increased their bets against the sector substantially. Many of the public corporations in the sector have had share prices increase in the double digits this year. They are, according to the sentiments of these short sellers, ready for a fall.

The short interest in Yahoo! Inc. (NASDAQ: YHOO) rose 22% in the two weeks that ended October 15 to 30.4 million shares. The company’s most recent quarterly report showed that Yahoo!’s core advertising business has not grown. A string of acquisitions may help its sales eventually, but there is no evidence it has so far.

The short interest in Groupon Inc. (NASDAQ: GRPN) was up 23% in the same period to 30.2 million shares. Groupon has made the case that it has turned around from when its volatile CEO and founder Andrew Mason fumbled with earnings numbers and alienated the company’s retail customers. Wall Street pushed Groupon shares up when another founder — Eric Lefkofsky — became CEO. He has tried to convince investors that his new mobile strategy will work. But Groupon’s stock is up 3.7 times from its all-time low. The company has not produced enough evidence it can regain its early success.

The short interest in Zynga Inc. (NASDAQ: ZNGA) rose 18% to 34.6 million. Its recent earnings showed that the game company is not still dying. But revenue in the most recent quarter continued to fall, and Zynga still loses money.

On the other hand, short sellers reduced their exposures to the shares of troubled companies, ironically. Many of these investors must be convinced stocks in these public corporations have bottomed and there is unlikely to be any more really negative news to drive them sharply lower. Shorts dropped their exposure to Cisco Systems Inc. (NASDAQ: CSCO), despite the trouble in several of its divisions and a lackluster forecast. Short interest in the stock dropped 16% to 50.9 million shares.

Short sellers also jumped out of a long list of damaged stocks across a very broad array of industries. They modestly pulled out of J.C. Penney Co. Inc. (NYSE: JCP), dropping their position 8% to 76.8 million shares. Short sellers also lowered their position in J.P. Morgan Chase & Co. (NYSE: JPM) by 9% to 43 million shares. Finally, they also moved out of Nokia Corp. (NYSE: NOK) ahead of the completion of its deal with Microsoft Corp. (NASDAQ: MSFT) cutting exposure by 10% to 35.9 million.

It has been an ugly business to short most stocks, and the market as a whole, during the recent remarkable run-up. However, short sellers believe they have found a place among sectors with fortunes that soon will change substantially.

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