The latest short interest reports reveal that short sellers have spent the last month or so cashing in on their bearish bets. According to the latest report, aggregate short interest on the S&P 500 declined by 5.3%.
While the decline in short interest is likely driven by profit taking, it also suggests that the bullish catalysts normally associated with potential short squeezes has dissipated. This, as the S&P 500 and other major indices are struggling to maintain their strong rebound rally from their respective September lows.
The combination of short interest declines and technical weakness suggests that the market could be in for a tough go during the last six weeks of the year.
That said, there are still a number of short squeeze candidates finding their way to our screens, allowing us to find bullish opportunities.
Short Squeeze Opportunities: Newell Rubbermaid Inc. (NWL)
Pens, cookware, storage and a whole bevy of other products that would typically go unnoticed are the reason that Newell Rubbermaid Inc. (NWL) shares have returned nearly 15% year-to-date. Consistent demand for these products has resulted in eight straight quarters of earnings surprises and growing revenue, which puts NWL in a strong fundamental position against the market.
Short sellers are ramping up their bets against the stock, as its short interest ratio is headed towards new two-year highs. The growing short interest will help to trigger a short covering rally as the stock moves towards $45 again, after successfully testing its 50-day trendline a few days ago.
The squeeze will be on at $45 and likely drive NWL stock prices to the $50 level before year-end.
Short Squeeze Opportunities: People’s United Financial (PBCT)
Regional banks are likely to benefit from the coming interest rate hike, and People’s United Financial (PBCT) shares are sitting in a sweet spot among the group.
To date, PBCT shares are up just under 10%, outpacing the banking sector by just under 50%. The shares are a standout on the sentiment front though, as PBCT is among the most hated in the sector.
The short interest ratio for PBCT currently sits at 7.4, meaning that it would take more than seven days to cover the current short positions. The short interest ratio has been on the decline as PBCT moves to new highs, but there’s more rally left in the tank on this name.
Expressing similar sentiment is the analyst community. Currently, only 6% of the analysts covering the stock have it ranked a buy. This percentage compares to the average of 40% for the banking sector stocks. This means that there is plenty of room for analysts to start upgrading this relative-strength performer, which will drive prices even higher.
Our models are targeting a move to the $18 level before the end of the year.
Short Squeeze Opportunities: Mattel (MAT)
Just in time for the holiday season, Mattel (MAT) shares are gaining some technical traction that is likely to result in a short covering rally.
The October bottom for MAT put share prices just below $20, just before a decisive rally of more than 25%. Part of the recent rally was fueled by short covering, but the stock’s short interest ratio reveals that there is still a long ways to go before the shorts have covered their positions.
MAT recently pulled back to its 50-day trendline and successfully found support. This technical strength will likely trigger another round of covering when the stock breaks back above the $25 price. We’re targeting that a covering rally would drive prices close to the $28 level, another 12%-plus from current prices.
As of this writing, Chris Johnson did not hold a position in any of the aforementioned stocks.
