The short sellers are coming back to life as stocks teeter near all-time highs. For the latest reporting period, short interest on the S&P 500 companies increased 1.6% — marking the first uptick in short interest since short sellers started covering their positions in January.
While we have seen some short covering during the latest rally, a number of opportunities remain in place for those looking for an opportunity to bet against the bears. Looking at the S&P 500, 291 companies saw a decline in short interest while the balance had increased bets against a continuation in the rally — or at least a rally at these stocks’ level.
As usual, we take great interest in technically strong companies that the short sellers are actively betting against. Historically, these stocks are the ones that have the highest likelihood of seeing short squeeze rallies extend their performance.
The table below identifies the top 10 short squeeze candidates in the S&P 500 ordered by their current short interest ratios (highest). This list offers a great starting point for traders looking to identify candidates for squeeze-powered portfolio returns.
Taking a look at a few of the top candidates, we’re finding these three stocks particularly interesting given the current market conditions:
Click to Enlarge Not to be confused with the other Cisco (NASDAQ:CSCO), Sysco (NYSE:SYY) provides wholesale products and supplies to the foodservice industry. The company has seen some positive fundamental developments as the consumers continue to increase their discretionary spending, including dining out.
Technically, SYY shares have been rolling higher as of late and are now prepared to break into new multiyear-high territory — a move that should shake the shorts out.
According to the charts (monthly), the $34 level has provided resistance for SYY shares since 2010. This week’s move above $34 (along with some positive momentum indicators) should get the traders excited, increasing buying pressure. This, of course, should get the short sellers scrambling to close their positions. We like Sysco to reach $37 or higher over the course of the next leg in the market’s rally.
Click to Enlarge Hasbro (NASDAQ:HAS) recently broke through long-term chart resistance at the $40 level. The break higher comes after the toymaker’s stock spent more than six months consolidating between $36 and $40.
The break higher should grab the attention of the short sellers, who have more than 11 times the average daily volume of HAS shorted in their accounts.
The market still loves dividend yielders given the low-interest-rate environment, increasing the attractiveness of Hasbro’s breakout. Look for the short squeeze to push shares toward the next resistance level on the charts, about 10% higher at $48.
Click to Enlarge This fastener company has ties to the improving housing and construction market, a not-so-bad connection given the green shoots among these stocks. Fastenal (NASDAQ:FAST) has been on a tear, nearly doubling the S&P 500′s performance over the last three months, attracting the technical traders to its name. This means the shorts should be squirming as they hold more than 13 times FAST’s average daily volume short against their accounts.
Like our other stocks, FASST recently broke above long-term chart resistance at $50, and appears ready to make a push back to the $55 mark. This means the shorts might have even more to worry about as long-term technical traders are likely to enter into the buying mix, likely providing FAST shares with a boost. Given the chart below, expect a move above $52.50 to really get things popping on FAST.
As of this writing, Johnson Research Group did not hold a position in any of the aforementioned securities.