Bears are roaring back

Short interest on the New York Stock Exchange hit 13.1 billion shares at the end of April, a 4% jump from the previous month and the highest level of the year.

NEW YORK (CNNMoney) -- After staying quiet at the start of the year, the bears have come roaring back with a vengeance.

Short interest -- a bet on stocks turning lower -- topped 13 billion shares on the New York Stock Exchange at the end of last month. That's up 4% from March and marks the highest level of the year.

The rise in bearish bets came as the the stock market stumbled. The Dow Jones industrial average (INDU) and the S&P 500 (SPX) have fallen in four out the past six weeks, while the Nasdaq composite (COMP) has been in the red for five out of the six.

The pullback followed a six-month rally that resulted in a 30% jump for the S&P 500 that helped stocks log the best first-quarter gains in 14 years.

"Stocks got out of the gates really strong, and there was a lot of bullish sentiment out there," said Bill Strazzullo, partner and chief market strategist at Bell Curve Trading. "But then the outlook started to change."

After taking a time-out during much of the first quarter, Europe's debt crisis reared its ugly head, with a dozen European economies slogging through a recession. Meanwhile, growth in China, a big driver of the global economy, also began to slow, brewing fears of a hard-landing. Back at home, the U.S. economy began to lose steam and job growth dropped sharply.

"These three factors have definitely taken a lot of the sail out of the bulls' ship, and we're seeing a rise in short interest as investors try to play defense and protect themselves," said Strazzullo.

Ryan Bend, a portfolio manager of the Federated Prudent Bear Fund (BEARX), has been boosting the short positions in his fund recently, as a result of the global concerns, particularly in financial stocks.

In the aftermath of the recent French and Greek elections, Bend said he became increasingly nervous about European banks and the viability of the euro, leading to an increase in short positions against international banks.

Following JPMorgan Chase's $2 billion blunder revealed late Thursday, Bend might consider more short positions on U.S. banks, too.

"Financial stocks were so strong at the beginning of the year, and we didn't want to fight the tape," said Bend. "But we'll be looking more closely at U.S. banks after this."

Late Thursday, JPMorgan (JPM, Fortune 500) made a surprise announcement that it has suffered trading losses of $2 billion since the start of April due to trades designed to hedge against risk.

The revelation raises concerns about the broader financial sectors, as investors wonder whether there "are more skeletons in the closet" either at JPMorgan or other big banks, said Todd Salamone, vice president at Schaeffer's Investment Research.

And those worries could certainly spark some more short interest in the group, he added.

The KBW Bank Index (BKX), which tracks 24 U.S. banks including JPMorgan, Bank of America (BAC, Fortune 500), Citigroup (C, Fortune 500) and Wells Fargo (WFC, Fortune 500), rallied more than 26% during the first quarter of the year, but has declined more than 6% in April and May.