Beat Back the Short Attack!

Everyone loves a winner. It's reasonable to assume, then, that everyone hates a loser. Yet with investing, that's not always the case.

Contrarian investors love to pick through stocks that others have cast away. Value investors are the garbage divers of the marketplace. Conversely, when stocks have a big run-up, some investors like to bet against them. They're called short sellers, and they bet that a stock is primed for a fall. Sometimes, the heavy selling pressure doesn't work out, and the shorts have to beat a retreat.

What goes up must come down
Here's a list of stocks on the New York Stock Exchange that reported having some of the largest declines in short interest positions in May. We'll turn to the collective intelligence of the Motley Fool CAPS community to learn which of these stocks -- if any -- Foolish investors think had the power to make short work of short sellers.

Of course, this isn't a list of stocks to buy -- or short! Maybe these stocks had some serious problems that warranted the high short interest. Maybe not. What do you think? Will they be squeezed again?

Tapping the CAPS advantage
Over on CAPS, more than 30,000 rated investors are looking over these same stocks. Some they like, some they don't, and they all vote on how they feel about them. Sometimes, though, the stocks CAPS players like cross swords with those that short sellers don't.

It looks as though most of the short sellers guessed wrong on most of these companies going south. Only Motley Fool Rule Breakers recommendation NYSE Euronext's shares declined during the reporting period.

Investors, though, would have done well to back the prospects of CVRD. How could you have known? CAPS investors have been high on the Brazilian mining company since the beginning of the year, judging by its CAPS trend. When the shorts nearly doubled their position on the company in April, CAPS players never wavered, and the stock rose nearly 8% afterwards. The shorts apparently gave up. CRVD has generated a 60% return this year.

Some 40% of the professional and novice investors who have weighed in on the miner are considered All-Stars -- CAPS players who have consistently outperformed their peers. Almost all of them are bullish. Here's what a few CAPS players had to say:

• Top-rate alanknit has this focused view: "Blame it on RIO. Another great company to get commodities exposure, falling US dollar exposure, Brazilian exposure, and 'Boy does the US [stink] as an investment lately' exposure. Give me the ADRs and let the twin deficits in the US kill the dollar. Consumption of commodities worldwide only make RIO that much better. First inning of the ball game right now."

• Another All-Star, CaptBeer (gotta love that name!), notes: "This Brazilian Miner is the [world's] largest producer of iron ore with 23% of China's market already captured. With the acquisition of Canada's Inco it has gained a sizable share of the soaring nickel market as well."

• InvestorDeb concurs: "RIO owns the nickel market: a metal that developing countries cannot do without. This means that, in a time when we will see increased demand for base metals, RIO will have pricing power."

Speak up!
You've heard from the CAPS community; now it's your time for a star turn -- tell the community what you have to say. Only on Motley Fool CAPS does your opinion count just as much as the short sellers' do. Tell us what you think: Squeeze 'em till it hurts, or short 'em till the sun don't shine? May the best argument prevail!

NYSE Euronext is a recommendation of Motley Fool Rule Breakers. A 30-day free trial is your shortcut to market-beating returns.

Fool contributor Rich Duprey does not have a financial position in any of the stocks mentioned in this article. You can see his holdings here. There's no shortcut around The Motley Fool's disclosure policy.