I noticed an interesting development on today's short interest scan. A quick glance through the list shows a number of stocks related to alternative energy were up yesterday. A few of the more well-known stocks making the list included - SunPower Corp (SPWRA), First Solar Inc (FSLR), LDK Solar Co Ltd, (LDK), and JA Solar Holdings Co Ltd (JASO).

The stocks in this sector have had more than their fair shares of ups and downs in the last two years, with this year being mostly down. And weak performance this year may help to explain the heavy short interest. To get a feel for what is going on here, I created the table below that shows the daily charts along with total short interest.

First Solar Inc
SunPower Corp
JA Solar Holdings
LDK Solar Co

Price Charts Courtesy of Thomson Financial

As you can see, the price patterns for the last six months are fairly similar. We have a selloff through most of September and October, and then a basing period. The short interest charts show some variations, but an overriding theme is that there has been an increase at some point this year.

A topic raised in yesterday's post on Energy Conversion Devices, Inc. (ENER), another alternative-energy name with heavy short interest, was that sentiment needs to evaluated in the context of price action. Specifically, the contrarian implications of sentiment are strongest when they run counter to the price action. Here we have weak stocks, so the contrarian implications of skepticism need to be tempered.

However, I do think that there is still a reason to watch these stocks. As noted above, these stocks have moved from a downtrend to a sideways base. This is usually the first step in a bottoming process. The question here is whether we start to see some real signs that buyers are interested. If so, that heavy short interest could come into play as potential buying demand.