Duh!
Okay, I know that you can make money in a down market by shorting individual stocks. I've played GCI's up and down cycles for several years----buying long as the stock price goes up; selling toward what I think will be the top; shorting the stock when it turns and starts back down; buying it back toward the bottom to cover the shorted (borrowed) shares, and starting all over again.
It never dawned on me until today, while I was updating my Mutual Fund materials for my Kenai class, that there are mutual funds whose sole strategy is to short stocks.
I was looking here on Morningstar.com (scroll down the page to Mutual Fund Performance and Ratings and click on YTD Top Performers). My favorite, namewise at least, is Grizzly Short, which is up 14.13 percent since January. Its managers have shorted such stocks as Iron Mountain, PowerSharesQQQ, Washington Post, Siemens, Washington Federal, International Game Tech, Novellus Systems, etc.
Shorting stocks drives the price down. That is magnified by the large number of shares mutual funds short all at once or more likely over several weeks or longer. This drives the price down further than the stock would otherwise drop.
However, when the market bottoms out, and stocks start up---particularly any that have been shorted---the mutual funds and other investors who are holding all the shorted borrowed shares will begin to loose money. They will buy the shares so they can return the borrowed shares. That demand to buy the shares to cover their short positions will drive the stock prices up further. It will create a sort of artificial and significant bounce up for the stocks that have been shorted.
7:51:58 AM 
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