Short-selling data for the first half of September reflect some of the toppiness presenting in the chart of the S&P 500. For the first two weeks of the month, cumulative short interest on the S&P 500 companies increased by just under 1%. The slight uptick tells us that the shorts are still expecting a pullback in stocks — no surprise there because we also expect the same.
Looking under the bigger picture at the short interest data of individual companies finds a lot more interesting in the way of trading ideas.
Take Pitney Bowes (NYSE:PBI). This company is a business equipment provider that provides software, hardware and services used in physical and digital communications. The stock is breaking into a new uptrend after basing out at the $13 level. The uptrend is soon to be signaled by a cross of the 20-day moving average above the 50-day, which will likely attract a new round of technical buyers.
In addition to the technicals, the sentiment picture supports the bulls as investors are viewing PBI shares pessimistically. The current short interest ratio rests just below 20,while only a third of the analysts covering the stock have it ranked a buy. We like the prospects for the crowd to latch on to this reversal candidate and drive PBI shares toward $16 per share.
BorgWarner (NYSE:BWA) manufactures and sells powertrain components. The auto-parts companies have been under pressure lately as traders have been locking in profits. BWA shares appear to be in the process of putting together a new intermediate-term bullish trend, which would be confirmed by a successful test of the $69 level, currently underway. Success with the current support will likely cause the short sellers to start squeezing out of their positions and the analysts to start upgrading, pushing the stock back toward our short-term target of $78.
Eaton (NYSE:ETN): This electrical equipment manufacturer supplies systems for power quality, distribution and control, and hydraulics components, systems and services for industrial and mobile equipment. Shares of ETN bottomed at $36 two months ago and are now in a strong intermediate-term uptrend. Shorts have been busily adding to their positions as the short interest ratio hovers around 9. We expect these shorts to get squeezed as the stock rallies above support at the $47 level, giving us a target of $52 before year-end.
These three stocks are just a few from our Top Ten list of S&P 500 Short Squeeze Candidates, all of which you can find in the table below.