The latest short interest data just hit the wires, and it shows slight increases in bearish bets on the market as a whole as traders wait for a healthy pullback in stocks.
For the last two-week period, cumulative short interest on S&P 500 companies grew by 3.1%, marking the third increase in short positions in a row since January. The short interest hike suggests the “Wall of Worry” is growing stronger — bad news for those short-term bears that have been waiting for a healthy correction in stocks, like us.
Two of the best-performing sectors in the market saw huge increases in short interest during the past two weeks, potentially strengthening their bullish case. The Mortgage Finance SPDR ETF (NYSE:KME) and Insurance SPDR ETF (NYSE:KIE) saw their cumulative short interest grow by more than 9%. Large increases also came in the KBW Bank SPDR ETF (NYSE:KBE) and SPDR S&P Regional Banking SPDR ETF (NYSE:KRE), each with increases of 5% or better.
The increases on these technically and fundamentally strong sectors put these sectors high on our bullish list, as we’re forecasting continued strength from short squeeze rallies.
Looking beyond sectors and ETFs, the opportunities at the stock-by-stock level continues to grow with the rising tide of short selling. The table below displays 10 short squeeze candidates based on the latest increase in short interest and each stock’s technical trend.
A look at three individuals that stick out:
The “good hands” people at Allstate (NYSE:ALL) have been great for traders as the stock is trading more than 22% higher year-to-date. The insurer saw a whopping 151% increase in short interest, with 5,545,300 shares sold short during the past two weeks. The current short interest ratio of 4.5 is the highest for Allstate in more than three years.
The huge increase in short interest on ALL ahead of its earnings announcement on May 1 could be setting the stage for a big short squeeze. We like the stock to break through its $50 price level over the next month with potential to trade to $55.
Click to Enlarge There are a lot of stocks in the technology area that have been performing poorly, but Intuit (NASDAQ:INTU) isn’t one of them. The software company best known for TurboTax, QuickBooks and other software applications. INTU shares are trading about 11% higher for the year, keeping pace with the S&P 500.
The recent consolidation at $65 has the short sellers buzzing with a 24% increase in their bearish bets. History suggests that a hold at this level, or slightly lower at the shares’ 50-day moving average ($64), will get the shorts to start covering their positions, supporting the next short-term rally to the $68-$70 range.
Click to Enlarge Healthcare-related stocks have been going through the roof in 2013, including Stryker (NYSE:SYK), which has rallied 19% year-to-date. The pop in SYT has taken it to a new 52-week high and chart resistance at $65. As it stands right now, the stock is consolidating at this price, with a growing probability that the shares will continue their rally after their rest.
A break above the $65 level will result in the company forging ahead into new one-year-high territory — a move that will get more traders on-board with the rally. This, of course, would serve to get the shorts to start closing their positions, adding to the buying strength of the rally.
Look for a price target of $75 for this healthcare performer over the next few months.
As of this writing, Johnson Research Group did not hold a position in any of the aforementioned securities.