3 Stocks to Buy for Short Squeeze Magic

Advertisement

The short sellers are at it again, which means it’s prime time for short squeeze hunters.

short squeeze bll cern llyUsing the S&P 500 as a litmus test for the market, shorts increased their positions by more than 14%. But that increase in short interest is natural, as analysts and speculators (including us) have been expecting a correction in stocks for months now.

The increase in short interest should be a welcome sign for investors as it suggests that the market now has another potential “wall of worry” it can climb as we head into the seasonally strong fourth quarter.

As is always the case, we’re looking for stocks that are set to benefit from an increase in short interest as this activity is often a great signal that a short squeeze rally is ready to be triggered. The signature of a short squeeze candidate is a technically strong stock with a high short interest ratio. Higher prices are bad for short sellers, meaning that if these stocks move higher, it very likely will result in a flood of short covering, which is good for the bulls.

Right now, three stocks — Ball Corporation (BLL), Eli Lilly and Co (LLY) and Cerner Corporation (CERN) — fit the bill.

Short Squeeze Stocks: Ball Corporation (BLL)

ball corp bll stock
Click to Enlarge
Best known for consumer packaging, Ball Corporation (BLL) also provides products to the military and aerospace technology markets. The diversification of Ball Corporation attracts us from a fundamental perspective and helps to drive the company’s strong stock price trend.

BLL stock recently dipped below the rising 50-day moving average to find support at the 100-day MA (red trendline) after Ball Corporation’s recent earnings report. The post-earnings selling was contained by the strong technical trend for the stock, and we expect to see shares pop back above the $65 level, which should start to shake the shorts out of their losing trades.

Our expectations are for a short squeeze to move the stock toward $70 over the short-term.

Short Squeeze Stocks: Eli Lilly and Co (LLY)

eli lilly lly stock short squeeze
Click to Enlarge
Pharmaceutical and other healthcare companies are maintaining their positive trends as the aging population feeds positive fundamentals for the group.

Eli Lilly and Co (LLY) has maintained a healthy trend, remaining a relative strength leader among its peers while holding a strong trending pattern for its shares.

Short sellers have been increasing their bets against this continuing; short interest saw an 11% increase in the latest reports.

Watch for these shorts to start turning into buyers as they close their positions when LLY stock breaks above $65. According to the charts, the next stop for LLY shares would likely be $75 — a 15% climb from current levels.

Short Squeeze Stocks: Cerner Corporation (CERN)

cerner stock short squeeze
Click to Enlarge
Another healthcare company in the short sellers’ sights is Cerner Corporation (CERN).

Cerner straddles two industries that we’re bullish on — technology and healthcare — making the fundamental story attractive. CERN stock skipped right over a mixed earnings report last week as traders are more focused on the longer-term picture, which is strong.

Short interest on CERN shares increased by 6% on the last report, resulting in a short interest ratio (days to cover) of 9.5. While not the highest short interest ratio we’ve seen over the last two years, the 9.5 short interest ratio does suggest a high chance that the shorts will start buying shares back, as the stock is breaking into new high territory.

We’re expecting to see some consolidation at the $63-$65 range, followed by a short squeeze breakout that should drive prices higher through year’s end.

As of this writing, Johnson Research Group did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, https://investorplace.com/2014/11/3-stocks-to-buy-short-squeeze-lly-cern-bll/.

©2024 InvestorPlace Media, LLC