3 Squeeze Plays: High Short Interest, High Pop Potential

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“There’s always a bull market somewhere.” It’s one of our favorite sayings, as no matter how bearish the market gets, short interest often provides us with a few winning opportunities (via short squeezes, naturally).

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The latest release of short interest data actually showed a slight decrease in the bearish bets on the overall market; short interest on S&P 500 companies declined by about 1%.

In addition, shorts on biotech stocks — one of the most heavily shorted sectors — dropped by a similar amount.

The drop in short interest, though slight, signals that the investing crowd might be growing a bit complacent as they reduce their bearishly biased shorts in key areas of the market. Remember: It’s never a good time to be bullish when the crowd starts acting complacent.

That’s why investors would be better off focusing on the negative — specifically, companies that have seen an increase in short interest despite their technical and fundamental strength.

There, you’ll find some excellent short squeezed juice.

Short Squeeze Plays: Abbvie (ABBV)

short interest abbvShort Interest Ratio: 6.2

Pharmaceutical company Abbvie (ABBV) saw an increase in short interest of more than 200% over the last period, despite outpacing the S&P 500 and its peer companies. The increase in short interest comes at the same time that ABBV stock is making a run at its all-time high price.

Our models turned bullish on Abbvie shares in mid-April as the short- and intermediate-term trendlines improved. Since then, the short interest ratio on the stock has climbed from 2.1 to 6.2 times average daily volume.

The increase in short bets is a great example of the “wall of worry,” and a sign of a pending short covering rally that will likely drive ABBV to new all-time highs again.

Short Squeeze Plays: Dunkin Brands (DNKN)

Short Squeeze Plays: Dunkin Brands (DNKN)Short Interest Ratio: 8.2

Consumers are dining out in all fashions, including loading up on donuts and coffee on their way to the office in the morning. (Believe me, we know — the lines are getting out of hand!)

As a result, Dunkin Brands (DNKN) shares are forging to new highs after spending a year trading in a range.

The break higher is accompanied by an increase in short interest that has DNKN’s short ratio cresting to its highest level since June 2014, when Dunkin shares got locked in a range. The last real increase in short interest, September 2013, preceded a 20% rally in shares, aided in part by short covering.

Short Squeeze Plays: Express Scripts (ESRX)

short interest esrxShort Interest Ratio: 17.4

After pulling back more than 6% in May, pharmacy benefit management company Express Scripts (ESRX) is trading back above its 50-day moving average. The move improves the technical outlook for the stock while setting the stage for a short covering rally.

ESRX saw a huge increase in its short interest ratio is April, jumping from 5.5 to more than 17 times ESRX’s average daily volume as the shorts bet heavily against the stock. The extremely high short interest signals a great short squeeze setup with a trigger price for the rally set at $90.

As of this writing, Johnson Research Group did not hold a position in any of the aforementioned securities.

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Article printed from InvestorPlace Media, https://investorplace.com/2015/06/short-interest-abbv-dnkn-esrx/.

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