Over the past several months, much Foolish ink has been spilled over why Apple (AAPL 2.21%) has had such a monstrous pullback from its all-time highs set on the same day that the iPhone 5 launched. Inevitably the sell-off is tied to everything from perceived iPhone 5 shortages (which are now effectively gone), possible capital gains tax increases, increased competition, and many more.
Here's another culprit to add to the list: the shorts are piling on.
Since the end of August, Apple's short interest has increased dramatically from roughly 13.6 million shares held short to over 21.6 million shares held short at one point in November. That's an increase in bearish sentiment of 59% over 2.5 months. Unsurprisingly, Apple shares have become increasingly weaker in the face of overwhelming pessimism.
Source: Nasdaq.
There are a couple things to point out on this chart. Short interest figures are reported by the exchanges at the middle and end of each month based on settlement date. I've included closing prices on those dates, but closing prices are based on trade date. That means there's a three-business-day discrepancy, but you can still see the net result after several months.
In particular, the biggest jump in short interest of 28% during the first half of November corresponds to a 12% drop in Apple shares over the same time.
At the same time, there are limitations with looking solely at short interest to explain market activity, although the figures can add some context. Apple has 940.7 million shares outstanding, so even the recent short interest peak was only 2.3% of shares outstanding. Also, Apple's average daily volume is above short interest, so the number of days it would theoretically take to cover those shorts is typically just one.
Investors should keep something else in mind, though: those shorts are about to get squeezed out when Apple reports its monster fiscal first quarter in January.
