Short sellers are raising their guard again, although only slightly.
Click to Enlarge The latest short interest data for the S&P 500 revealed a 3% decline in short positions on large-cap sector stocks, despite increases in volatility and relatively weak seasonality.
Outside of the major indices, short interest has experienced sizable increases in several entertainment stocks, and companies involved with various types of entertainment content and delivery are seeing bullish setups.
We would consider these to be target-rich environments for the next bullish move in the market given this increase in pessimism, despite the fact these stocks have weathered the recent pullback with strength.
The table above identifies the top 15 companies on our short squeeze radar. Each stock on the list has seen relatively large increases in short interest at the same time that their stock charts have shown technical strength.
Short Squeeze Trade: Charter Communications (CHTR)
Media companies are seeing a flood of sellers as the market tries to put its arms around the future of entertainment and content. Meanwhile, short sellers appear to be lumping entertainment delivery companies like Charter Communications (CHTR) into the same category — a mistake any way you slice it.
CHTR shares have outpaced the market significantly by posting year-to-date returns of 8%, compared to the 1% put up by the S&P 500. Charter’s gains come on fundamental strength; namely, constant demand to deliver the massive amounts of content continuously consumed through customers’ bandwidth.
With a short interest ratio of 7.8, CHTR stock will likely see a short squeeze rally triggered by a move above the $190 level, a price that is a scant 5% from current levels.
Short Squeeze Trade: Take-Two Interactive (TTWO)
Gaming companies such as Take-Two Interactive (TTWO) also have some short squeeze potential right now.
Take-Two saw an increase in short positions of 3%, to a total short interest of 18% of its float, as TTWO stock makes a break toward new-high territory above $32.
TTWO stock, which is up 7% YTD, is currently benefiting from technical strength at its 50-day moving average, which might serve as a perfect access point for short-term traders to position themselves for a covering rally.
Short Squeeze Trade: GameStop (GME)
GameStop (GME) is almost a carbon copy of TTWO’s short squeeze setup.
GME shares are trading 37% higher on a year-to-date basis, but that hasn’t stopped the short selling community from loading up on positions. The current short interest ratio weighs in at a mind-blowing 30 times the GME stock’s average daily volume.
GME shares are currently finding support at their 50-day trend line, with additional chart support residing at $44, about 3% lower than today’s prices. With two rounds of technical support already in place, the downside risk for the stock appears vastly smaller than the upside potential, as a short squeeze rally will likely push prices toward $55 in short order (pun intended).
As of this writing, Johnson Research Group did not hold a position in any of the aforementioned securities.
