Investors usually think of the dog days of summer as bringing light volume trading and fewer opportunities for short-term profits, but nothing could be further from the truth. The lighter trading volume is a fact, but trading opportunities actually increase in the short squeeze universe as lighter volume can mean faster squeezes higher.
This month, we’ve seen the short sellers start to draw lines in the sand by increasing their bearish bets in a number of companies. Many of these are some of the stronger performing stocks in the market.
This of course, is exactly what we look for in quality short-squeeze candidates; high short interest stocks that continue strong technical trends are highly likely to see covering rallies, which drives prices even higher.
The following are three short interest stocks to pay attention to in the days ahead.
Short Squeeze Stocks to Buy: Mead Johnson Nutrition CO (MJN)
Short Interest Ratio: 6.3
Consumer staples companies remain popular targets for bullish investors, as strong dividend stocks are popular in the low-interest rate environment. Mead Johnson Nutrition CO (NYSE:MJN) offers a small dividend with attractive growth potential. This is important because the shares should be less affected by any changes in the Federal Open Market Committee’s outlook on interest rates.
MJN shares have been shorted to more than six times their average daily volume, putting them on the list of short squeeze candidates. The pop comes after seeing a 31% increase in the shorts ahead of MJN earnings, which are due on July 28.
Our scoring system ranks the stock a buy, as we’ve seen a break above relative highs recently and strengthening in the technical picture. Analyst recommendations remain low, although they did receive an upgrade recently.
Headed into earnings, it is good to see the buildup of shorts, as a number that is simply in line with expectations will spark a covering rally. For now, our model targets a continued move higher towards a target of $100 over the short-run.
Short Squeeze Stocks to Buy: Host Hotels and Resorts Inc (HST)
Short Interest Ratio: 6.2
Hotelier and real estate investment trust Host Hotels and Resorts Inc (NYSE:HST) has been on a technical move of late, as the stock bounced from the $15 level again to rally to $18. For now, the shares are showing signs of topping out a bit, but earnings are due in a few days, and are likely to act as a breakout catalyst.
The shorts have added 8% to their positions over the last reporting period, putting the stock’s short interest ratio at 6.2 times its average daily volume. Along with the very low analyst recommendations, HST shares present themselves as an opportunity to get into an uncrowded trade as it breaks out higher.
The $17 level has been key, and shares broke higher than this mark this week. A hold above this level and an inline earnings report will spark the short covering rally that will drive HST shares to a target price of $20.
Short Squeeze Stocks to Buy: Stillwater Mining Company (SWC)
Short Interest Ratio: 9.1
With a short interest ratio of 9.1, Stillwater Mining Company (NYSE:SWC) heads into its earnings report on July 29 as a short squeeze candidate.
The stock has set forth on a strong technical trend with its 50-day and 200-day moving averages trending higher. In addition, shares just broke above their 20-month moving average, signaling that SWC is now in a technical bull market pattern.
SWC shares are now pressing against the $13.75 level, which is the site of the 50-month trendline. It may seem arbitrary, but a break above this level will ignite the next rally fueled by short covering and technical buyers with a short-term target of $20.00.
As of this writing, Johnson Research Group did not hold a position in any of the aforementioned securities.