ANI Pharmaceuticals (ANIP)

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Generic-drug stocks are outperforming the market this Friday, but it's not necessarily a sign of strength for the group.

Stocks of embattled generic-drug makers Mallinckrodt (ticker: MNK), Endo International (ENDP), Mylan (MYL), and Teva Pharmaceutical Industries (TEVA) were up significantly at midday.

But the stocks that rose the farthest had the biggest bets against them.

The bumps came for the stocks with the largest short interest, likely coming as short sellers sought to exit their positions on a strong day for the markets.

Short interest makes up 20.1% of the float of Endo, which was up 4.9% Friday, and 4.6% of Mylan, which was up 3%. Teva, with 8% short interest, was up 2.3%. Mallinckrodt, which has short interest of 54.4%, was up 2.6%.

Earlier in the day, Amneal Pharmaceuticals (AMRX), with 8% short interest, was up 5.2%, though the rally flatlined by early afternoon. The stock was down 0.4% on the day by 1 p.m.

On strong days on the market such as Friday, with the S&P 500 up 1.5%, short sellers exiting their positions in heavily shorted stocks can send those share prices disproportionately higher. That appears to explain the pop in the generic-drug stocks, as nothing fundamentally changed Friday about the multiple headwinds facing the sector, including the ongoing opioid and generic-drug price fixing litigation.

Other health-care stocks were also having good days amid the general market upturn. Johnson & Johnson stock (JNJ) was up 2% after Bernstein analyst Lee Hambright upgraded the stock to Outperform, saying that the litigation risks it faces were overstated.

"JNJ stock is historically cheap," Hambright wrote, saying that the market had priced in far in legal liabilities than he realistically expected the company to pay.