Don't be fooled by the smoke and mirrors of the recent unemployment and manufacturing data, warn Goldman economists, things aren't as great as they appear.

Data released by the U.S. Labor department showed a 0.4% drop in unemployment over the past two months. The Institute for Supply Management’s factor index grew more than 3 points since the end of August.

So what's the problem?
According to analysts at Goldman Sachs and Nomura Securities International, the data isn't reliable. The models that are used "to smooth the data for seasonal changes" have been shaken up by the financial collapse of 2008-2009.

Consider construction, which "would always pick up in the summer, when the weather is milder, and decline in the winter." Ellen Zentner, a senior U.S. economist at Nomura said in a phone interview with Bloomberg, "around April the seasonal bias turns and starts working against the data ... The model ends up adjusting for a growth pattern that isn't there."

Bad news
According to Zentner's calculations, the 0.4% drop in jobless rate is overcompensation. Perhaps 0.2% of the 0.4% is due to the bias. "Economists at Goldman Sachs forecast unemployment will average 8.5 percent this year, unchanged from December's reading. Nomura's estimate is 8.4 percent."

As for construction, the industry has seen growth, even with the seasonal adjustment.

Business section: Investing ideas
Goldman is advising their clients not to read too much into the 2012 rally, but which stocks are most vulnerable to this thesis?

To illustrate this concept, we wanted to identify the 2012 rallies that appear to be vulnerable by looking at institutional money flows and short-seller activity.

We started with a list of 2012's top performing stocks, and identified a list of six rallying stocks that have seen a sharp increase in shares shorted over the last month (i.e., an increase in bets that these stocks will decline).

This is significant, especially when you consider that short-sellers tend to be more sophisticated investors (due to the fact that they require strict credit approval to perform these trades). So if these investors are turning bearish on a stock, it's worth paying close attention.

To further refine the quality of our list, we collected data on institutional money flows, and identified the rallying stocks that have seen significant institutional selling during the current quarter.

Big money managers have extensive resources to analyze investing ideas. So if they're dumping a certain stock, it's worth paying close attention.

These companies might have started 2012 on a strong footing, but sophisticated investors don't think these are sustainable rallies.

Do you agree? Or is this excessive pessimism a contrarian buy signal? (Click here to access free, interactive tools to analyze these ideas.)

1. KB Home (NYSE: KBH): Operates as a homebuilding and financial services company in the United States. Year-to-date return stands at 38.54%. Net institutional sales in the current quarter at -3.4M shares, which represents about 5.19% of the company's float of 65.47M shares. Shares shorted have increased from 25.60M to 26.65M over the last month, an increase which represents about 1.6% of the company's float of 65.47M shares.

2. Ancestry.com (Nasdaq: ACOM): Operates as an online resource for family history for subscribers worldwide. Year-to-date return stands at 27.79%. Net institutional sales in the current quarter at -1.4M shares, which represents about 4.67% of the company's float of 29.96M shares. Shares shorted have increased from 6.30M to 6.66M over the last month, an increase which represents about 1.2% of the company's float of 29.96M shares.

3. Veeco Instruments (Nasdaq: VECO): Designs, manufactures, and markets equipment to make high brightness light emitting diodes (HB LEDs), solar panels, hard-disk drives, and other devices. Year-to-date return stands at 26.68%. Net institutional sales in the current quarter at -5.8M shares, which represents about 16.43% of the company's float of 35.31M shares. Shares shorted have increased from 8.83M to 9.44M over the last month, an increase which represents about 1.73% of the company's float of 35.31M shares.

4. RAM Energy Resources (NYSE: RAM): Engages in the acquisition, development, exploitation, exploration, and production of oil and natural gas properties primarily in Texas, Louisiana, Oklahoma, New Mexico, and West Virginia. Year-to-date return stands at 24.60%. Net institutional sales in the current quarter at -3.1M shares, which represents about 5.58% of the company's float of 55.57M shares. Shares shorted have increased from 293.90K to 1.89M over the last month, an increase which represents about 2.87% of the company's float of 55.57M shares.

5. Federated Investors: Provides its services to individuals, including high net worth individuals, banking or thrift institutions, investment companies, pension and profit sharing plans, pooled investment vehicles, charitable organizations, state or municipal government entities, and registered investment advisors. Year-to-date return stands at 21.65%. Net institutional sales in the current quarter at -7.7M shares, which represents about 8.29% of the company's float of 92.87M shares. Shares shorted have increased from 8.61M to 10.09M over the last month, an increase which represents about 1.59% of the company's float of 92.87M shares.

6. Renren (Nasdaq: RENN): Operates a social networking Internet platform in China. Year-to-date return stands at 20.85%. Net institutional sales in the current quarter at -9.1M shares, which represents about 5.21% of the company's float of 174.71M shares. Shares shorted have increased from 4.98M to 7.96M over the last month, an increase which represents about 1.71% of the company's float of 174.71M shares.

Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the stocks mentioned above. Analyst ratings sourced from Zacks Investment Research.


List compiled by Eben Esterhuizen, CFA. Kapitall's Eben Esterhuizen and Rebecca Lipman do not own any of the shares mentioned above. Institutional data sourced from Fidelity, short data sourced from Yahoo! Finance.