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What are we looking for?

Stocks that short sellers are circling.

After years spent in the wilderness, shorts have returned to the market with renewed pessimistic conviction.

The bull market, now in its sixth year, has been ruthless to short sellers, who've struggled to find sinking boats in a rising tide.

But defensive bets have surged of late, with bears sending short interest in the SPDR exchange-traded fund tracking the S&P 500 to a level not seen since 2012, according to Bloomberg. For investors who are also beginning to feel more bearish, we looked for the stocks attracting the greatest levels of pessimism.

How we did it

We first screened for stocks listed on Canadian and U.S. exchanges with the greatest short interest.

The short interest ratio is a measure of investor sentiment toward a stock. It shows how long it would take traders, in days, based on average daily volumes, to cover their short positions if the price of the stock begins to move higher.

The higher the ratio, the greater the negative sentiment. We included the 20 stocks with the highest short interest ratio, subject to some additional criteria.

We wanted only those stocks with deteriorating sentiment, so short interest had to have increased over the past month.

And we excluded stocks with a market capitalization of less than $100-million.

What we found

A list of 20 stocks that short sellers are betting will drop in price.

Canadian stocks are well represented here, with eight names among the top 20 shorted stocks. The biggest among them is ATS Automation, which is trading near an eight-year high.

Other familiar Canadian stocks that shorts are targeting include Leon's Furniture, Great Canadian Gaming and Rocky Mountain Dealerships.

This list could prove a good starting point for investors looking to run with the bears, but further research should be done before making any investment decisions.

North American listed stocks with strong short interest