Last week, Bespoke Investment Group released the most-shorted stocks in the S&P 500 during December 2012. As a trader, my interest was piqued—especially because the list wasn’t only small-cap stocks like OpenTable (NASDAQ:OPEN) or Questcor Pharmaceuticals (NASDAQ:QCOR). Their list also included large-caps, and familiar names, too, like Gamestop (NYSE:GME) and Safeway (NYSE:SWY).
I thought it would be interesting to see how their list overlapped with the stocks I follow. For the most part, I saw consistent results—stocks that my Power Stocks system showed high levels of weakness in also had significant short interest…with one exception.
According to Bespoke, Take-Two Interactive’s (NASDAQ:TTWO) short interest as a percentage of float was 28% in December. My Power Stocks system, which scans hundreds of stocks for liquid, volatile candidates for options trading, rated TTWO as a problem stock—that is, one that is in a downward trend showing signs of accelerating its descent.
My system rated Gamestop, another stock on Bespoke’s list, as among the weakest of the stocks I follow. There is very little downside here left, so while I share the bearish sentiment, the traders who hold that 36% of short interest may not be very happy in the coming weeks. JC Penney (NYSE:JCP) is another laboring stock with nearly 50% in short interest—it’s tried to rally up, but with little success.
Click to Enlarge Pitney Bowes (NYSE:PBI), on the other hand, is where my data doesn’t align itself so neatly with Bespoke’s. While the stock did experience some end-of-year selling (perhaps because of fiscal cliff fears) and Bespoke shows over 29% short interest as a percentage of PBI’s float, my system’s theoretical models show a buy watch for this stock on any further strength. The stock is trading above its 50-day MA, and has been testing current resistance is at $12. That just goes to show you that just because there’s a lot of short interest in a stock, you shouldn’t discount it entirely before looking further.
InvestorPlace advisor Ken Trester is editor of the popular Maximum Options program. Trester has been trading options since the first exchanges opened in 1973 with a winning streak that goes back to 1984 with money-doubling average annual profits since 1990. Try Maximum Options today for 2 months for only $99.