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Check the "crawl." Next, check the ticker crawl below the High 5 list. The crawl displays other stocks in demand by short sellers on that day. The two numbers (each typically two digits after a decimal point, such as ".02") following the stock ticker show you the intensity and direction of demand from the short side. The first number after the ticker shows you the cost of borrowing the stock to short. The second number shows you how the demand has changed. Here's an example:
Earlier this week, natural-gas company InterOil (IOC, news, msgs) appeared on the crawl followed by ".15." This tells you the cost of borrowing the stock was 15 cents per share per day. Since the mean cost of borrowing shares through LocateStock is about a penny per share per day, the borrow rate on InterOil was enormous, reflecting extremely high demand from short sellers.
The next number tells you how much the borrow rate has changed from the day before. If it is ".02" with a green arrow pointing up, it shows that short sellers are willing to pay 2 cents more per share per day, compared with the day before. This would indicate short demand is probably increasing. (The crawl quotes borrowing costs per share; the minimum amount short sellers can borrow is 100 shares.)
Sign up as a user and test the lending rate. You can sign up and use the site for free to request a "locate" on shares as a way to test the borrow rate. If the rate is above the mean borrowing rate of 1 cent per share per day, that suggests there's strong demand from short sellers for the stock. You might have second thoughts about buying it. But generally, any stock that has a borrow rate is probably in high demand, given that short sellers typically go to LocateStock only after they have been turned down by their brokers.
Use LocateStock to short stocks. Even when they decide to accept the risk, many individual investors with low-frills brokerage accounts simply can't find stocks to short. LocateStock helps these investors find those stocks.
Stocks to avoid or short
Tabacco lists the following stocks as ones to avoid -- or short -- because they have been on the hit list a lot lately.If you think energy prices are in a bubble and about to reverse, for example, you have strong allies among short sellers. United States Oil (USO, news, msgs), an exchange-traded fund, has appeared on the hit list eight times already this month.
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Or consider solar stocks. Yes, there's huge promise in the field. Every day, the sun bombards us with almost 6,000 times the energy we use, BrightSource Energy chief John Woolard told a renewable-energy-finance forum last week in New York.
But until we're better at collecting it, solar stocks will trade in fits and starts -- and often in line with the price of oil. If oil prices fall, solar stocks likely will go down with them, Tabacco says.
Shorts seem to anticipate that very scenario. Many solar stocks have been appearing on the High 5 list a lot lately, including JA Solar Holdings (JASO, news, msgs), Akeena Solar (AKNS, news, msgs), Yingli Green Energy Holding (YGE, news, msgs), Solarfun Power Holdings (SOLF, news, msgs) and SunPower (SPWR, news, msgs). Tabacco says Canadian Solar (CSIQ, news, msgs), which hit the High 5 list on June 17, is "probably the ripest right now" for a short play.
Crocs (CROX, news, msgs), which makes those rubber shoes people seem to love or hate, has been crushed. Down below $8 a share from $75 last fall, it may look like a buy. But given the persistent demand for shares to short, Tabacco doesn't think so. "The stock is down considerably, but there is no light at the end of the tunnel," he says.
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Shorting oil and metalsKevin Rich of Deutsche Bank discusses how to win with oil and other commodities.
For the past year, the shipper DryShips (DRYS, news, msgs) has declined to the $50-a-share range after big rallies. DryShips is now in the upper $70s after a recent high of about $110. Continuing solid demand by short players at Tabacco's site suggests the stock will continue its current downtrend -- and may even base once again around $50. "It probably has another $20 or $30 of downside," he says.
Online travel company Priceline.com (PCLN, news, msgs) continues to trade near 52-week highs. But expectations that a weak economy may soon take its toll on business could explain why Priceline hit the High 5 list a month ago and continues to see strong demand from short sellers.
To find out whether your holdings are among these potential losers, check out the intensity of demand for them at LocateStock or just keep an eye on the hit list. That way, you can get a read on whether your stocks will do well going forward -- or swim with the fishes.
At the time of publication, Michael Brush did not own or control shares of any company or fund mentioned in this column.
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