Short sellers remain on edge about the market, apparently, as they spent the most recent two-week period adding to their market hedges. The latest short interest data shows a slight increase in shorts on the SPDR S&P 500 ETF (SPY) and the Dow Jones Industrial Average ETF (DIA), while shorts declined on the more volatile Russell 2000 index of small-cap stocks.
Click to Enlarge The lackluster activity in the aggregate short interest totals suggests that investors are still expecting volatility as we make our way through the seasonally weaker months of July and August.
Of course, we believe the market remains ripe for stock picking, as indices and sectors are showing lower correlations.
Despite the rangebound market, we’re seeing a growing number of short squeeze candidates emerge. In fact, a small number of stocks are demonstrating relatively extreme short interest ratios but are pressing on to new highs, which should in turn spark short squeezes.
The table above displays the top 15 short squeeze candidates based on their respective technical strength and recent short interest activity. From this list, we have three blue-chip candidates that look exceptionally ripe for a short squeeze. Read on, and we’ll discuss.
Short Squeeze Plays: Deere & Company (DE)
The Green Machines are driving growth for this industrial company as earnings results and technical strength are climbing a “wall of worry.” Year-to-date, Deere & Company (DE) shares have returned about 10%, besting the S&P 500 by four times.
Despite the technical strength, only 14% of the analysts covering the stock have it ranked a “buy,” meaning that we’re likely to see upgrades as things move higher.
Short interest on DE increased by 7% in the last report, signaling that short sellers are increasing their bets against the stock as it moves toward new all-time highs.
A break above the $98 price will get these shorts running into the market to cover their losing positions and likely stoke a move well above $100.
Short Squeeze Plays: Campbell Soup (CPB)
Dividend-yielding consumer staples companies continue to attract investors. Campbell Soup (CPB) is in the sweet spot to provide growth and dividend yield — the company appears set for a short squeeze higher while providing an annual payout of 2.6%.
Short sellers added to positions by 8% in the latest report, taking the stock’s short interest ratio to almost 9. The increase comes as shares trend toward the $49 level, which would represent a new 52-week high. Short sellers will be forced into buying, pushing CPB toward our year-end target of $55.
Short Squeeze Plays: Express Scripts (ESRX)
Short interest on Express Scripts (ESRX) shares jumped another 4% in the latest report, taking the short interest ratio for this pharmacy benefits management company to a whopping 18. The current SIR is among the highest in the last two years as short sellers appear convinced the stock is prepared to fall from glory.
Recent price activity has seen healthy pullbacks to ESRX’s 50-day moving average, which continues to serve as bullish support. With a short squeeze trigger price of $92.50, we see the stock preparing to break higher and rally with a likely year-end target in excess of $100.
As of this writing, Johnson Research Group did not hold a position in any of the aforementioned securities.
