What a difference a few weeks can make in the stock markets. The S&P 500 is now challenging its 2016 highs as short sellers are adding slowly to their bets against the market.
Click to Enlarge This combination means that there are more potential short squeeze opportunities for those of us ready to comb through the data.
This time around, our short squeeze models identified 34 S&P 500 companies that are set up for bullish moves based on their charts and recent short interest. This is by far the largest number of companies within the benchmark index that we’ve seen qualify for this list year-to-date — a reflection of the market’s recent strength.
A word of caution, though: While this market has helped to raise all boats in the harbor, the market’s internals and technical trends continue to suggest that the recent volatility storm is all but over.
Short Squeeze Stocks: Fastenal Company (FAST)
Low interest rates and continued activity in the real estate market continue to favor housing-related stocks like Fastenal. Year-to-date, Fastenal stock has led the market considerably, returning 15% and maintaining technical dominance.
Short interest on Fastenal stock is holding at its highest levels in more than two year as the bears keel trying to call a top in FAST — a costly mistake.
The 18.7 short interest ratio is excessive for almost any stock, but especially for one trading with the technical and relative strength that has carried Fastenal against the rest of the market.
Wall Street analysts’ buy recommendations on Fastenal shares currently weigh in at a paltry 18%, with 80% of the same group sitting in the “hold” category. This indicates that the stock is far from representing a “crowded” trade, which good news for those holding or buying the shares now.
Watch for a break above $47.50 to slingshot Fastenal shares 10% higher to a short-term target of $52.50.
Short Squeeze Stocks: Deere & Company (DE)
Nothing runs like a Deere, right?
While Deere is sliding a bit of late, it’s still breaking away from the market as it moves back into intermediate-term bull market territory on recent positive fundamental improvements. Short sellers are betting against a move into bull territory, as the short interest ratio is hovering near two-year highs at a hefty 9.1, meaning that any moves higher will start to squeeze the bears.
Analyst recommendations on Deere & Company stock are bearishly biased as only 17% of the analysts covering the stock have it ranked a buy. A move back into bull market territory will likely force some upgrades, helping to drive prices even higher.
Watch for a break above $85 to trigger the next short covering rally for Deere & Company, with a target of $100.
Short Squeeze Stocks: Darden Restaurants, Inc. (DRI)
Darden has made its way to the short squeeze list multiple times over the last two years, each time resulting in great short squeeze results. This month, the casual dining giant makes its way back up the list as short sellers are again increasing their bearish bets.
Short interest in that latest report showed an increase of 10% on Darden stock, bring the number shares short on the stock to its highest level since November 2014! The short squeeze that occurred at that time shot DRI from $48 to $63 (31%) in a matter of six months.
The current short squeeze scenario looks very similar to the November 2014 signal as the stock is once again breaking through to new highs. Fundamentally, the restructuring of Darden — including the recent spinoff of Four Corners Property Trust Inc (FCPT) — is paying off to Darden’s business and bottom line.
Of course, Wall Street is still sitting on the sidelines, with only 39% of the analysts tracking DRI rating it a buy. The strong technical breakout to new highs will shake some upgrades out of Wall Street, helping to fuel the short covering rally that is likely to drive Darden stock to the $80 level.
As of this writing, Johnson Research Group did not hold a position in any of the aforementioned securities.