3 Potential Short Squeezes Just Waiting to Pop

The recent volatility in the market should be a friendly sign for short sellers as they continue to bet on some extended downside moves. Unfortunately, technical support and a seemingly endless stream of buyers looking to buy dips have helped most stocks avoid the breakdowns that would finally pay off for the persistent short selling crowd.

S&P 500 short squeeze
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However, bad news for the short sellers is good news for any investors monitoring the market for short squeeze trades.

A short squeeze happens when a highly shorted stock (one that short sellers have bet heavily against) continues to move higher. Since higher prices generate losses for a short seller, they eventually get “squeezed” into closing their position when a stock remains strong. The grand irony is that when they close their shorts they have to buy the stock, which only adds to its strength and helps those that were betting against the shorts.

The accompanying displays the top 20 short squeeze candidates from the S&P 500. Read on as we look at three candidates we like in particular.

Short Squeeze Stocks – GameStop (GME)

gme stock short squeeze
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We’re headed into a seasonally strong period of the year for video game-related companies like GameStop (GME).

Over the last 13 years, GME has outperformed the S&P 500 92% of the time in August and 67% of the time in September. The seasonal strength will help pressure the shorts, especially as GME stock breaks above chart resistance at $45.

Watch for a short squeeze to move GameStop some 10% higher to $50.

Short Squeeze Stocks – Tripadvisor (TRIP)

TRIP stock short squeeze
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Travel stocks like Tripadvisor (TRIP) are benefiting from increased travel numbers as well as the growing number of travelers looking for a deal thanks to rising travel costs. Revenue is growing at 30% year-over-year, fueling the recent new highs.

With short interest of more than eight times that average daily volume, TRIP stock is set for a squeeze higher.

We expect a break above the double top at $110 to act as the catalyst for the short squeeze.

As a note, TRIP reports earnings after the bell Wednesday.

Short Squeeze Stocks – Wellpoint (WLP)

WLP stock short squeeze
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The changing regulatory environment and increased demand from an aging population serve as fundamental positives for healthcare providers.

Wellpoint (WLP) shares have outperformed the S&P 500 by more than three times during the past quarter and remain technically strong. The shorts are starting to cover their bearish bets as WLP breaks to new highs.

Expect a short squeeze to drive WLP shares toward $130 for a roughly 13% gain.

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/2014/07/3-short-squeeze-stocks-wlp-trip-gme/.

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