Notwithstanding the strong market gains, short selling interest is building, according to National Bank Financial Ltd.

“Although the bull market is going strong (the Dow Jones industrial average has not had a correction in a record 1,580 days), short-selling activity is at an all-time high,” NBF reports. “The ratio of short interest to total shares outstanding on the New York Stock Exchange has recently surpassed 3%, its highest level ever.”

“ Short-sellers seem to be particularly wary of U.S. consumption patterns,” it explains. “Short interest in the consumer discretionary sector amounts to 3.7% of outstanding shares. Several homebuilders are among the 20 most-shorted S&P 500 stocks.”

In Canada, NBF reports that short-selling activity is highest in the IT sector. “No less than 6.5% of outstanding shares in the sector have been shorted. Among the Canadian stocks considered to be the most likely to fall, we note four information technology companies: Celestica Inc., CGI Group Inc. Cognos Inc. and Research in Motion Ltd.,” it says

“Given the adverse market conditions that short-sellers face, we regard these short-sold companies as red flags. Even the raging bull market did not stop many investors from betting that these stocks will fall,” it concludes. “Short-sellers clearly see something negative that merits investigating.”