Our most recent look for short squeeze candidates revealed some good news for the short sellers: Namely, for a couple of weeks, they have been on the ball, closing their positions while the market was down.
Click to Enlarge Aggregate short interest on the S&P 500 dropped by 4% in mid-April as short sellers locked in profits from the small 4% decline in the market. But to some degree, the declining short interest represents a concern — if the short sellers are really paring their bearish bets, it could be a sign that the market is beginning to become complacent, which often precedes intermediate-term market weakness.
For now, as always, we like to target sectors and stocks that continue to see increases in their respective short positions, especially when accompanied by strong technical pictures.
A great example of this is utilities, represented by the Utilities SPDR (XLU). In the last reporting period, the companies that make up the XLU saw flat short interest growth — not exciting until you consider that short interest in utilities was already teetering at some of its highest readings over the last two year.
That persistently high short interest is waging a battle against a strong technical backdrop, increasing the odds that these stocks will see short squeezes over the next month or two. We expect not only utility companies, but the XLU itself, to press toward new all-time highs on the strength of short squeezes.
Outside utilities, several individual stocks are drawing our attention as potential short squeeze candidates. The table above identifies the top 20 companies from our short squeeze filter, but read on as we look more closely at three especially compelling targets.