Short interest shot higher as of the latest data from the exchanges, meaning bearish investors have upped their bets against the market.
Click to Enlarge For instance, the popular SPDR S&P 500 ETF (SPY) saw its short interest rise by 17% — a sign that the “crowd” is betting on even lower prices.
For our money, we think that the sentiment may be correct, on a large scale, as the current market rally is exhibiting some signs of being a simple dead-cat bounce. Still, our models have found small pockets of stocks that look like ringing short squeeze candidates, and thus should outperform the market into year’s end.
The accompanying table shows our current list of short squeeze candidates. Each stock listed remains in a healthy technical trend (something that can be said of less than 25% of the S&P 500 stocks today) but has seen an increase to already relatively high short interest. This suggests that the shorts are likely to start capitulating soon, which drives prices even higher.
Here’s a closer look at three particularly tempting short squeeze candidates.
Short Squeeze Stocks: Hershey Co (HSY)
Chocolate giant Hershey (HSY) struggled before the rest of the market fell in August as it slumped more than 25% for the year into its August lows. During that same time, HSY has managed to maintain year-over-year revenue growth, which resulted in the company’s first earnings beat in more than a year last quarter.
The fundamental improvement has Hershey’s technical trends telecasting a bullish outlook, something that the shorts are ignoring. HSY stock broke through a consolidation level two weeks ago and now has the strength of supporting technical trends to help move things higher.
After a 19% increase in short interest, the technical breakthrough almost guarantees a covering rally that is likely to propel HSY shares back to the $100 level.
Short Squeeze Stocks: Under Armour Inc (UA)
Under Armour (UA) has remained on the short squeeze list for the past few months, explaining the monster move from $75 to $100. Shorts increased their bearish presence on UA ahead of the earnings report scheduled for Oct. 22.
Technically, UA shares are drawing a potential breakout to new highs just ahead of the earnings report, which is even more reason to expect a short covering rally to move shares even higher. Watch for support at $100 and anything above $105 to start triggering a short covering rally, which could run the shares to $125 — 25% higher from here.
Short Squeeze Stocks: Myriad Genetics, Inc. (MYGN)
Healthcare stocks are down more than 10% over the last three months, but the same can’t be said about Myriad Genetics (MYGN), which is up more than 15%.
One reason for the difference is that MYGN focuses on diagnosis and disease progression, not drug development or biotechnology, which is more likely to suffer as political “hot buttons” through the election cycle.
MYGN shares have spent the past month consolidating below $40 and look ready to break through this key level. With a short interest ratio of 28.3 (more than 28 times the average daily volume is held in short positions), it is very likely that we will see a quick and violent (in a good way for the bulls) move higher toward a target of $45 — some 20% higher from here.
As of this writing, Johnson Research Group did not hold a position in any of the aforementioned securities.
