Short-sellers, investors who profit when stocks decline, are tasting intellectual victory, as recent sharp declines in technology stocks have placed a huge, hard-to-ignore question mark over the sustainability of the bull market.

With the tech-burdened

Nasdaq

down 19% from its March 10 high, the crash that short-sellers have long warned of could be unfolding. Understandably, after having been consistently crushed by a decade-long bull market, the shorts are in no mood to relax. But the consensus among them seems to be that the end is more nigh than it's ever been.

"Has the back of the speculative mania been broken? My guess is that it has," says Bill Fleckenstein, of Seattle-based

Fleckenstein Capital

. "You can't unwind the last two years of speculation in a couple of days, so I expect

the market declines will continue," he adds.

At one point Tuesday, the Nasdaq was a gut-emptying 15% below Monday's closing level, but the index rallied strenuously to close just 1.8% lower. This sort of neck-snapping volatility is a sign that confusion has replaced blind optimism as the prevailing emotion in the technology sector. "This tells you that no one understands what they own," comments one New York-based veteran short-seller who requested anonymity. "Stocks are just ciphers."

'Have to See Some Despair'

Alan Newman, a consistently bearish strategist at Great Neck, N.Y.-based brokers

H.D. Brous

, believes there's still a lot of optimism in the market that needs to be squeezed out before the bottom drops out. "I don't see anything in the way of fear," he says. "I have to see some despair."

But the collapse will come, according to Newman, who is particularly worried about the amount of debt that has been used recently to buy stocks. And he's not just talking about the $265 billion of

margin debt. He estimates, very roughly, that other types of debt used to finance stock purchases -- second mortgages, home-equity loans and credit card borrowing -- could equal the amount of margin debt outstanding.

"This has been the greatest mania of all time," says Newman. "I think stocks will underperform for a long time" after the collapse, he says.

Stock exchange statistics show a small increase in short-selling recently. In mid-March, 2.67 billion shares were sold short on the Nasdaq, a 4.3% rise on the 2.56 billion in mid-February, according to the exchange. Almost the same thing happened on the

New York Stock Exchange

, where short interest totaled 4.11 billion shares, a 5.7% rise from the month-earlier figure, according to the exchange.

Not Just the Techies

As can be seen from the NYSE stats, it'd be a mistake to assume that only tech stocks are getting shorted. One East Coast-based bank stock fund manager is taking aim at banks he believes are either overvalued or have large exposure to the tech market through their investment banking divisions or through their venture capital arms.

The manager, who requested anonymity, says banks such as

Northern Trust

(NTRS) - Get Report

and

State Street

(STT) - Get Report

are trading at valuations that are far too high for their profit-growth rates. He names

Chase

(CMB)

as a bank with vast

tech exposure. (His fund is effectively short all three banks, via options.)

Accepted wisdom has it that short-sellers are misanthropes who like to profit from other people's misfortune. But Fleckenstein feels apologetic as he begins to look vindicated. "The bad thing about being bearish and being right is that a lot of people get hurt," he says. "Anyone who celebrates this is irresponsible."

But he's no less bearish -- even when it comes to the real economy. "A tremendous misallocation of capital has occurred," he explains. "When the stock market busts, there'll be a recession."