by Johnson Research Group | April 30, 2013 9:01 am
This week, we’re taking a look at a segment of the market a lot of traders like to sift through for opportunities: the $10 and under stocks, often called “single-digit stocks.”
These stocks are attractive to traders as they possess potential to spring higher, and in some cases faster, than stocks trading with higher prices. Plus, many are free of the influence of institutional trading, as some mutual funds and other institutional traders are limited to stocks that trade with prices higher than $10.
Adjusting our short squeeze filters to take aim at the single-digit stocks, we’ve found nine companies currently setting the stage for short squeeze rallies based on their technical and short interest trading trends. These stocks all trade under $10 with 50-day moving averages that are identified by our algorithms as trending higher.
In addition, each stock’s current short interest ratio is currently above 6, which is the threshold that we apply to identify potential squeeze candidates. Take a look:
As usual, let’s dig even deeper for a few of these stocks that are particularly attractive.
Click to EnlargeThe restaurant industry is growing legs as consumers spending habits continue to grow. Companies like Cheesecake Factory (NASDAQ:CAKE) and Darden Restaurants (NYSE:DRI) have seen improvements in their operations, but that trend is also trickling down to the fast food outlets such as The Wendy’s Co. (NYSE:WEN) and McDonald’s (NYSE:MCD).
Wendy’s will announce quarterly earnings results on May 8 — a potential short squeeze trigger event. In addition, the stock is drawing a bullish intermediate-term pattern as the shares 20-day moving average consolidates with the 50-day to provide support at $5.55.
Given the trends in the stock and the potential for an earnings beat next week, we like WEN shares as a short-term bullish candidate.
Click to EnlargeThis Thursday, Standard Pacific Corp. (NYSE:SPF) is set to announce earnings. The company had mixed results of late as positive earnings were met with profit-taking. We expect that this trend may play out again as a trading opportunity for both the bulls and the bears. SPF shares are used to seeing a run ahead of earnings results as investors load up on the stock on optimistic outlooks.
Unfortunately, this also sets the stock up for a “sell the news” situation. We won’t be too surprised to see the shares trade lower after earnings this week. In other words, the shorts are likely to be right here.
That’s not all, though; there’s another trade for SPF. The silver lining for SPF is that the earnings sell-off often turns to a buying opportunity. Right now, the post-earnings target for SPF should be around $8.40 — approximately 10% lower. At this price, aggressive traders should take the opportunity to switch from bears to bulls in preparation for SPF to begin re-tracing the course back to the $9 level.
How do the shorts come into play here? Remember, they have to close their positions at some time and a move to $8.40 will allow them to take profits, which still results in them buying shares back (a short squeeze).
Click to EnlargeAirlines have been hot as travelers continue to get back to the friendly skies. And with the sequestration problems easing, the airline stocks are likely to press higher again.
JetBlue Airways (NASDAQ:JBLU), a single-digit flier, is hovering just above its 50-day trendline, currently residing over $6.70. We expect to see some consolidation above this level over the next week or so before it makes a run back at the $7.25 mark — a move that will probably get the short sellers moving from their positions.
Our data suggests that the next move will have the stock taking off for the $8 level over the next quarter — an 18% move given its single-digit status.
As of this writing, Johnson Research Group did not hold a position in any of the aforementioned securities.
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