by Johnson Research Group | March 31, 2014 7:57 am
In our latest screen for short squeeze possibilities, we’ve found that short sellers are raising their guards again … though not by much. The latest short interest data for the S&P 500 shows a mild 1.5% increase in short positions — a relatively light increase given the rough patch of trading that has faced traders. (In comparison, short interest on Nasdaq–100 companies increased by 5.2% for the same two week period.)
Click to Enlarge The increase in short interest in the tech-heavy index is the largest since November 2012 and should be noted as a positive for the PowerShares QQQ Trust (QQQ) as it suggests investors were already pricing risk into this group of stocks. We see that as a positive — these stocks should be more likely to climb the “wall of worry” via short squeezes as soon as the market begins to gain some strength.
Otherwise, we also have seen above-average increases in short interest among homebuilders and transport stocks, despite the fact that they’ve weathered the recent pullback with strength. We would consider these to be short squeeze target-rich environments for the next bullish move in the market given the increased pessimism.
The stock-level analysis of the data reveals some familiar names from our last short squeeze report, along with some new names of interest. The table above shows the top 20 companies that fit our profile, but read on as we focus in on three particularly appetizing short squeeze prospects:
Click to Enlarge At the top of the list is a new name, Corning (GLW), though it’s not a stranger to short squeezes.
The recent increase in short interest — a whopping 79% — surges the company’s short interest ratio to its current reading of 6.8. This is the highest reading of GLW’s short interest ratio since November 2013 (see the chart below), just before the stock saw a covering rally that pushed the shares 12% higher.
Click to Enlarge This tech name is already trading with relative strength against the market as it pushes to new multiyear highs. Our research of GLW stock also shows that it is not unusual for shares to rally ahead of its earnings dates. This means shares might have an additional catalyst soon; the next earnings report is slated for April 23. We’re expecting a short squeeze to help push GLW stock another 10% to 15% higher over the next month or two.
Click to Enlarge Consumer packaging company Ball Corp. (BLL) also made our list this time around. BLL has been a mover, returning 4% year-to-date against a flat market.
The 35% jump in short interest comes at a perfect technical time, as BLL stock is bouncing from its 50-day moving average, currently sitting at $52.30. In addition, the recent pullback in shares registered a short-term technically oversold condition for Ball Corp., making BLL stock a short-term technical “buy” from our perspective.
Watch for this short-term move to shake the recent pack of bears out of their shorts, fueling a short squeeze rally.
Click to Enlarge Credit rating giant Moody’s (MCO) has been a company of interest for us for some time. The company’s fundamental story remains strong as investors continue to seek guidance on debt issuance in a market that has been tough to navigate.
Moody’s earnings results reflect this strength, as the company has bested analyst expectations by an average of 10% over the last four quarters. Those results have helped propel the stock to gains of 45% during the past year.
Despite the strength, the shorts are betting against MCO stock yet again. We love the recent pullback to the stock’s 50-day moving average as an entry before the stock heads back to new high territory, which will of course get the shorts running back to the market as buyers to cover their position.
As of this writing, Johnson Research Group did not hold a position in any of the aforementioned securities.
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