Short interest for the latest two-week reporting period showed almost no movement among the short sellers. For the period, short interest on the S&P 500 constituent companies declined 0.07% compared to the previous period’s downturn of 5.42%.
Click to Enlarge The minuscule movement suggests that the shorts have stopped covering their bearish bets, as they may expect the market to see some weakness over the next few weeks.
As always, the drop in short interest at the market’s level does not mean that the opportunity for short covering rallies goes away, as a number of stocks continue to see contrarian trading opportunities on individual short interest defying strong technical patterns.
The table below identifies the top 15 companies on our Short Squeeze Radar. Each of these companies have relatively high short interest ratios, an increase in their short interest over the last two weeks and strong technical trading trends.
Historically, this combination often results in a short covering rally for stocks.
Short Squeeze Stocks: People’s United Financial (PBCT)
Short interest on People’s United Financial (PBCT) blew up by 26% in the last report, putting it on our list of highest short interest changes. And indeed, regional banks are seeing a lot of short interest activity of late, as the sellers appear to be positioning for interest rates to remain steady. To us, this is like betting the sun might not come up tomorrow, but they have their reasons.
The result of the move in PBCT is a short interest ratio of 11.8. While this isn’t the highest the ratio has been in the year, it is high enough to trigger a short covering rally.
The chart for PBCT shares is bullish as the stock it trading well above its 50-day moving average, which is also trending higher. Historically the stock has a 2:1 probability of moving higher each day that the trendlines are following this pattern, which is bad news for the short selling bears.
The models identify $17 as the trigger price for a short covering rally likely to drive the price north of $20.
Short Squeeze Stocks: Market Vectors Semiconductor ETF (SMH)
It’s not that often that we see an exchange-traded fund pop up on the Short Cover Candidates list, so we take note when it happens. This report showed a 10% increase in short interest on the Market Vectors Semiconductor ETF (SMH), which jettisoned the short interest ratio to a near high reading for the last two years.
The additions to short interest come as the semiconductor sector is benefitting from strong fundamentals, some positive M&A activity and a strong chart, making this a great bullish contrarian play.
The Semiconductor ETF charts shows that shares are trading above their rising 50-day moving average, a quantifiably bullish trend for the shares. Topping that, the shares are now headed back toward all-time high territory, which is going to spell trouble for short sellers.
A break above $57 will likely serve as the price trigger for another covering rally for the SMH shares, with an upside target of $63.
Short Squeeze Stocks: Arm Holdings (ARMH)
Arm Holdings’ (ARMH) short interest ratio is sitting at its highs over the past two years as short sellers added a timid one percent to their existing bearish bets last month. The additions to short interest come as the stock is clearing the way for a move higher.
From a technical perspective, Arms Holdings shares just bounced from long-term technical support at the shares’ 20-month moving average. This maintains the stock’s long-term bullish outlook. From a shorter-term perspective, ARMH shares broke above their 200-day trendline less than two weeks ago, setting the stage for a technical breakout higher.
Shorts are going to get caught on the wrong side of this trend, triggering a short covering rally that will help to propel prices even higher. We’re watching the $52 level as the “trigger price” for the covering rally, but expect that we could also see things begin to move higher after a break of $51.
Short-term targets for a covering rally currently sit at $55.
As of this writing, Johnson Research Group did not hold a position in any of the aforementioned securities.