Even if you never decide to pursue short selling, you still need to track the key actions of short sellers. These contrarian investors may be highlighting potential troubles for a stock that you own in a long-focused portfolio. And they also often provide key clues about the economy’s underlying changes.

#-ad_banner-#As I recently noted, the year ahead is likely to be quite different from the recent past, impacting companies and industries in myriad ways. And you can add the impact of a strong U.S. dollar to the group of factors that are impacting business conditions.

What do the shorts have to say about these economic changes? Well, they are targeting several companies and industries that appear increasingly vulnerable to an economy-led pullback.

Perhaps the most obvious example of an industry in flux, is the laser-like focus of short sellers on AT&T, Inc. (NYSE: T). As of the end of January, the short interest in this telecom giant stood at a whopping 303 million shares. For a bit of context, the short interest stood at roughly 100 million in September 2013 and has been steadily rising ever since.

This stock now has nearly twice the short interest of the second most-heavily shorted stock on the New York Stock Exchange, Vale S.A. (NYSE: VALE). From a more vigorous regulatory stance by the Federal Communications Commission (FCC) to an increasingly competitive landscape, short sellers are betting that 2015 is the year that AT&T finally begins a slow, terminal decline. AT&T’s plans to acquire DirecTV (Nasdaq: DTV) would bring in an appealing asset, yet also heavily burdens the balance sheet.

Meanwhile, rival Comcast Corp. (Nasdaq: CMCSA), which is also in pursuit of a major deal (with Time Warner Cable, Inc. (NYSE: TWX)), also commands a short position in excess of 100 million shares, making it the fifth most-heavily shorted stock on the Nasdaq. That’s just a few notches below second place Frontier Communications Corp. (Nasdaq: FTR), which carries a 147 million share short position. Cablevision, Inc. (NYSE: CVC), an east-coast broadband provider, also has more than 25% of its shares held by short sellers.

Net/net: short sellers see trouble ahead for the internet/telecom landscape.

Short sellers also target industries through the use of exchange-traded funds (ETFs). The Financial Select Sector SPDR ETF (NYSE: XLF) now has a short interest approaching 120 million shares.

Several risk factors may be on their mind.

First, the bi-annual Comprehensive Capital Analysis and Review (CCAR) results are due next month, and some have questioned whether banking regulators will again ding certain big banks for their capital positions. (I hold a contrarian view: that the CCAR results will be mostly favorable, which could serve as a near-term catalyst for beleaguered Citigroup, Inc. (NYSE: C).)

Second, shorts may also be focusing on the fact that the Fed may put a freeze on any rate hike talk this year, especially while the bond markets are signaling renewed global economic weakness. Banks have been counting on rate hikes to finally bolster their interest income.

Lastly, shorts may suspect that the housing market may be in for another tough year. (Again, a view that I don’t share). Mortgage origination activity is quite lucrative, and banks like Wells Fargo & Co. (NYE: WFC) are still awaiting an upturn in housing purchase activity.

Short sellers also like to target companies that garnered a lot of recent buzz, but appear poised for a steady downdraft. As I noted back in October, short sellers held nearly half the trading float in former highflyer GoPro, Inc. (Nasdaq: GPRO). Though shares have since fallen in value, shorts have boosted their positions and now control a stunning 67% of the trading float.

Other current and former high-flying stocks that shorts are now targeting include:

Zillow, Inc. (NYSE: Z)
SunEdison (Nasdaq: SUNE)
3D Systems (NYSE: DDD)

Risks To Consider: Short sellers have been gaining solid traction in recent months as the market moved into a sideways trading pattern. But an upward move in 2015 for the broader markets may lead these short sellers to throw in the towel, which would have the effect of boosting share prices further.

Action To Take –> There is a slew of important information to be gleaned in the bi-monthly short interest reports. You can look at the short data in two ways: to see which companies might be overvalued in the context of upcoming quarterly reports and embedded growth expectations. Or you can look at short sellers for guidance in a top-down macro approach.  These types of shorts tend to identify key economic trends and then focus on the stocks or ETFs that may capitalize on such trends. In your research efforts, it is helpful to look at short selling from both angles.

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