Short sellers helped to drive the market more than 12% higher through mid-March as indicated by large drops in some highly shorted names. Now, with the market trading in a tight range, short sellers remain quiet and generally inactive.
Click to Enlarge Total short interest on S&P 500 stocks grew by a paltry 0.25% over the last two-week trading period — a lighter-than-average figure. From a contrarian perspective, the lack of current shorting activity may be signaling a bit of complacency that could come back to haunt stocks.
However, even though short interest remains a bit boring at the aggregate level, there are still a number of individual companies that are sitting ready to benefit from their own short squeezes.
Our most recent short squeeze uncovered a new list of names with high short interest and high potential.
The table above identifies the top 15 stocks that are set up for a short squeeze rally based on their current technical strength. But as always, we’ll take a closer look at a few of our current favorites.
Short Squeeze Stocks: Stryker Corporation (SYK)
Stryker (SYK) is a medical appliance company based in Kalamazoo, Michigan. The company is best known for its orthopedics division that supplies equipment for replacements of hips and knees.
Like many in the medial industry, Stryker stock had a rough go through the second half of 2015 as the stock pulled back from its highs near $105 last July.
Unlike most companies in the medical field, SYK is now trading back at its highs and even breaking higher.
This is where the shorts come in.
The short interest ratio on Stryker shares is above 6 — historically a trigger level, according to our model. In addition, short interest on the stock saw an increase of 20% for the last reporting period. The fact that SYK is breaking to new highs while the shorts are piling on their bearish bets will likely lead to a covering rally.
We think shares will be driven 12% higher toward the $120 mark over the intermediate-term.
Short Squeeze Stocks: Microchip Technology Inc. (MCHP)
We like more than a few things about this specialized semiconductor company.
First, Microchip Technology (MCHP) deals in a segment of the industry that continues to grow; it provides chips for everything from wireless communications to audio applications to automotive networking.
Second, MCHP generates a dividend yield of 2.9% at its current prices. This makes the stock attractive to investors that are trying to cope with the fact that lower interest rates really are here to stay for a while longer. So it has a dividend, and yet it’s still a dynamic tech stock.
Last, but certainly not least, is the current short squeeze setup on Microchip Technology. The stock saw a 10% increase to its short interest, which was already high. The current short interest ratio of 10.3 tells us that MCHP is ready to benefit from a short covering rally when the stock breaks above the $50 level.
Our model is currently suggesting a price target of $56 on Microchip Technology as a result, or 15% higher from recent prices.
Short Squeeze Stocks: Target Corporation (TGT)
The divergence between retail stocks continues to grow as the sector is drawing definitive lines between the haves and have-nots. Target Corporation (TGT) is back in the haves camp of late, as the fundamental changes it has been making for years are beginning to take hold, making Target stock one of the technical leaders in retail.
The short sellers clearly don’t see the comeback continuing, though, as short interest on TGT remains near its highest levels over the past two years. According to the last set of short interest data, shorts sellers added 6% to their bearish positions, driving the short interest ratio to 7.1.
With Target stock nearing a breakout to new highs, a short squeeze is almost imminent. We see a break above the $84 level as the likely trigger for this rally, along with a price target of $96 — 15% higher — as the retail leader makes another move higher.
As of this writing, Johnson Research Group did not hold a position in any of the aforementioned securities.