Short sellers have remained quiet over the last few weeks as total short interest on the S&P 500 companies dropped only slightly while the market has climbed back to the top of its range.
Click to Enlarge Still, there are a large number of individual companies that are seeing significant levels of short selling — in many cases against very strong bullish cases.
This, of course, is the age-old recipe for yet another batch of short squeeze rallies.
A short squeeze happens when traders increase the number of short positions on a stock (bets that a stock will go lower). Stocks become short squeeze candidates when their short interest ratio reaches excessively high levels while the stock’s technical trends remain bullish.
Those same stocks move from being just candidates to being squeezed higher when the stock breaks above some sort of technical trigger level that causes shorts to start buying shares to cover their losing positions.
The table above identifies nine short squeeze candidates based on their recent short interest. We’d like to focus on three particularly hot stocks that should burn the shorts before too long.
Short Squeeze Candidates: Comerica Incorporated (CMA)
Comerica Incorporated (NYSE:CMA) conducts financial operations via three groups: business bank, retail bank and wealth management. Comerica reported earnings per share last week that were in line with analyst expectations and revenue that was slightly lower than the market’s expectations.
Recently, the price trend of CMA is improving against its peers as the shares prepare to potentially break above their 200-day moving average, which would be a trigger event for a short squeeze
Short sellers have more than six times the average daily volume tied up in bearish bets on CMA. The last time we saw similar squeeze potential was in October 2014 — just before shares surged almost 12%.
A move above the $47 level will serve notice to the shorts that it is time to cover up, helping to shoot CMA toward prices per share in excess of $50.
Short Squeeze Candidates: Kinder Morgan Inc (KMI)
It’s hard to like many companies attached to oil or gas right now, but Kinder Morgan Inc (NYSE:KMI) has proven itself to be one of our “best of breed” leaders. Now, the short sellers are looking to take the stock down — a plan that we see backfiring as a squeeze is likely to emerge over the next few weeks.
Short sellers have been shorting KMI at a rapid pace since December, building the short position to its highest levels since October 2014, when shares found their bottom at $34. This proved to be a good buying opportunity, as KMI stock rallied 24% over the next six weeks.
KMI might be pulling its short squeeze trigger as we speak, as shares are tussling with the $44 level after successfully breaking back into new high territory. Our short-term outlook for the shares targets a move to $50 on the backs of the suffering short sellers.
Short Squeeze Candidates: Under Armour Inc (UA)
You would have thought that Under Armour Inc (NYSE:UA) didn’t even exist before Jordan Spieth’s victory the way that the media has talked about it, but the fact is this company has been a sound outperformer, up almost 900% over the past five years while the S&P 500 is up just 76%.
Chances are that the short sellers weren’t raising their bearish bets against UA because of the company’s sponsorship of the Masters winner, but it will certainly be one of the reasons that the shorts will get squeezed out of their spots.
Under Armour stock is under some short-term selling pressure, but still are sitting around new high territory. If you’re willing to be patient, way for the current bout of selling to take UA to $80 before taking a swing. Our intermediate-term target for UA shares is $92 — a 15% move from the limit price of $80.
As of this writing, Johnson Research Group did not hold a position in any of the aforementioned securities.