Wayfair Inc. short sellers have racked up US$1.9 billion in mark-to-market losses this year through May 5, and more pain is likely.

That’s because shares of the online home-goods retailer are on pace to close at a record high Wednesday after investors applauded management’s positive outlook for a second day.

The shares rose 24 per cent to US$165.88 on Tuesday, extending an almost eight-fold rally in less than two months. Yesterday’s gain alone cost short sellers about US$736 million in mark-to-market losses, said Ihor Dusaniwsky at financial analytics firm S3 Partners. Bearish bets in Wayfair were at US$8.11 billion with 23.18 million shares shorted, or 38 per cent of float, according to S3 data.

Tuesday’s price move was “definitely not due to short covering or a short squeeze,” said Dusaniwsky, managing director of predictive analytics. “It was long shareholders bidding up the price and no sellers at the lower bids which forced Wayfair’s stock price up over US$175/share.”

It’s certainly possible Wayfair will see a short squeeze near term given the huge mark-to-market losses, especially if the stock rally continues, he said. New shorts could also get into the game if Wayfair’s stock retreats below the US$165-US$170 range.

“Either way, expect volatility on the short side in Wayfair,” he said.

Wayfair is the 16th largest short in the U.S. stock market, according to S3 data.