Monitoring the biweekly short interest data and the activity of short sellers has been one of the best indicators for breakout stocks lately.
Click to Enlarge A few weeks ago, we identified three stocks that were good setups for short covering rallies as short interest was building on these technically strong stocks. Now, two weeks later, two of the three have surged 10% or more at the same time that the S&P 500 has declined more than 2%.
That in mind, it’s time to look at the newly updated short interest data for another round of short squeeze candidates. The table below identifies the top 10 short squeeze candidates from the most recent release from the exchanges.
Our quantitative system identifies short squeeze candidates by searching for stocks that are technically strong with abnormally high short interest. The results are often that the short sellers are forced to close their losing positions as the stock continues its trend, resulting in a squeeze higher.
Let’s take a look at a few of them.
Short Squeeze Candidate: Starwood Property Trust, Inc. (STWD)
Click to Enlarge Real estate investment trusts, commonly called REITs, continue to grab attention as interest rates remain muted. Starwood Property Trust, Inc. (STWD) is the nation’s largest commercial mortgage REIT, managing over $29 billion in assets. Shares pay investors an 8.2% dividend while posting modest price growth.
Short sellers are hammering the stock lately as short interest has surged to its highest levels in more than two years. A move above $24 will get these shorts running into the market as buyers to cover their losing positions, squeezing prices higher.
Short Squeeze Candidate: Burger King Worldwide Inc (BKW)
Click to Enlarge We’re not particularly fans of the Whopper, but it’s clear that others are. Burger King Worldwide Inc (BKW) shares are up a stunning 60% year-to-date and yet the short interest is running to its highest levels in the last year.
The current short interest ratio for BKW stands at 16 times the average daily volume of the stock, which is huge.
The stock price is breaking above the $36 level, which failed a few weeks ago. A successful hold above $36 will initiate a short squeeze likely to move the stock to the $40 level.
Short Squeeze Candidate: Cablevision Systems Corporation (CVC)
Click to Enlarge Cablevision Systems Corporation (CVC) continues to outpace the market as content providers and deliverers benefit from the movement to entertain ourselves without leaving the house. CVC shares have returned 25% over the last year compared to the S&P 500 return of 14.6%.
Despite the outperformance, short interest remains relatively high, meaning that the stock could benefit from any show of strength.
The last two weeks have seen CVC shares drop 10% — just what the short sellers would want, right? Believe it or not, the drop still qualifies CVC for a short squeeze since the shares that are short against CVC still have to be bought back to close the short position.
This is a great example of how even a stock that declines, generating profits for the short sellers, can still be a short squeeze candidate! Look for the shares to move from support at $20 back toward $22.
As of this writing, Chris Johnson did not hold a position in any of the aforementioned securities.
