Click to Enlarge Wall Street tends to migrate to the ends of the market-capitalization spectrum when they talk about stocks.
You know what I’m talking about: “Large-Cap Movers!” or “Small-Cap Breakouts!”
But what about the “in between” group: midcaps?
The midcap universe — as measured by the iShares Core S&P Mid-Cap ETF (IJH) — is up 21% year-to-date, right between the 24% returned by small caps and 18% for the S&P 500, meaning midcaps are ripe with trading opportunities for those willing to look.
From our perspective, there’s no better way to look than researching the short interest activity on this robust group.
By July’s close, IJH’s stocks (roughly 400 companies) saw a roughly 1% decline in short interest as short sellers continue to get squeezed out of their positions with the market’s resilient move higher. On the aggregate, it would appear the short squeeze opportunities are slimming, but when you drill down to the company level, there are plenty of good finds.
Currently, there are 35 companies with short interest ratios at their highest levels for the last year, 16 with ratios higher than 9, indicating that there’s a higher probability of a short squeeze rally. The table above (which you can click for a full view) identifies 10 of these “stuck in the middle” squeeze opportunities, but we want to dive deeper into three specific midcap picks:
Click to Enlarge Micros Systems (MCRS) is a $23 billion company best-known for its work with point-of-sale applications in the retail, restaurant and hotel industries. The improving economic conditions have helped oversee improvements in travel and leisure activity, which trickles down to support companies like MCRS.
Micros has met or beat earnings expectations for the past year, with both the bottom and top lines headed higher. Those positive fundamentals have driven the midcap’s stock price higher, but failed to shake the huge short selling crowd out of the stock. With 28.7 times the average daily volume, MCRS is at the top of the list for short squeeze candidates.
Target a potential move to its all-time highs around $57.50 from here.
Click to Enlarge Scotts Miracle-Gro (SMG) has lagged the market slightly, returning only 17% year-to-date, the results of choppy earnings. That aside, the technicals for the $24 billion market-cap stock are threatening a breakout above the $55 level.
If there’s one thing the shorts hate most, it’s a breakout above a stock’s chart resistance — which is exactly why we like this fertilizer giant at this juncture.
A break (possibly within the next week) above the April highs will force short sellers to start buying their portion of the 5 million shares that have been sold short, fueling a potential move to the next point on this midcap’s chart, $60 — an 11% pop.
Commercial Metals Company
Click to Enlarge Commercial Metals Company (CMC), a $21 billion metal recycler, is benefiting from a positive move in the materials sector as investors begin to position themselves for increases in demand for raw materials.
Like other materials companies, the fundamental picture has been muddy with volatile earnings results, but the chart action presents a breakout opportunity as the midcap presses against the $16.20 level. Short sellers have shorted more than nine times CMC’s average daily volume — shares they will have to cover when the stock breaks higher. The chances of a breakout are increased with rising technical support just below the current price from its 20- and 50-day moving averages.
Watch for the shorts to squeeze this one to $17.50 — a move of more than 8% from here.
As of this writing, Johnson Research Group did not hold a position in any of the aforementioned securities.