Short sellers have begun accumulating bets against the market over the last few weeks as the market continues its tightrope walk across new all-time highs. From an overall perspective, sentiment remains far from pessimistic as we’re beginning to hear analysts and market commentators suggest that the market can do no wrong. This, of course, puts us on alert for more broad market selloffs that could lead to darker days.
Click to Enlarge That said, the latest short interest data reveals a growing number of stocks that continue to see what we would refer to as “healthy” short interest patterns — the kind that result in bullish short squeezes or rallies.
As always, we scan more than 7,000 companies for technically strong stocks to buy that are seeing increases to already high short interest. This “setup” is often the profile of a potential short squeeze candidate.
Expect moves higher in any of these names to act as a trigger for the shorts to start buying the shares back to cover their positions — something that benefits the wise traders that position themselves ahead of these likely moves.
As always, we like to identify a few stocks to buy given their standing as potential short squeeze candidates:
Stocks to Buy – Myriad Gynetics (MYGN)
Click to Enlarge Shares of Myriad Gynetics (MYGN) are up roughly 5% in the past week, and MGYN has spent the past month bouncing between $32 and $37 on higher than normal volatility. This stock should be considered an aggressive trade with a short-term target of $42.
Short interest is back near its highs as the stock is threatening to break back above its 50-day moving average, which likely would trigger a short squeeze.
Stocks to Buy – Trinity Industries (TRN)
Click to Enlarge Trinity Industries (TRN) was on the stocks of interest list thanks to increased short interest activity. After a short rest, TRN stock is finding support at the $80 level.
Stifel upgraded its price target for Trinity shares from $86 to $90 based on the strong fundamental outlook.
I’ve mentioned lately that the stock market is getting closer to being fully valued by the market, but there is reason to believe that we could continue to see $90 in a relatively short time frame.
Stocks to Buy – Transocean (RIG)
Click to Enlarge Shares of Transocean (RIG) have been on the technical mend after spending much of the second quarter bottoming at the $40 level. Short interest on RIG shares has grown to nearly 13 times their average daily volume, an extreme reading that has not been seen in the past two years.
RIG stock is a high dividend yielder that has significant upside potential given the technical reversal.
As of this writing, Johnson Research Group did not hold a position in any of the aforementioned securities.