Light volume summer trading actually favors short cover rallies as the thinner volume can make prices even more volatile when a stock starts pressuring the short-sellers to exit their positions.
Looking at the market in general, using the S&P 500 Index, the short-sellers have been relatively inactive through the summer as aggregate short interest on the S&P barely changed from the last two week reporting period.
Given the market’s move to new highs it is relatively safe to assume that this will change soon as the shorts feel the pressure of a market that is melting higher against their bearish bets.
The table below displays the top 15 short squeeze candidates from our database model. The model identifies companies that are in strong intermediate-term bullish trends that have also see increases in already relatively high short interest. Our historical research shows that these stocks tend to outperform the market.
Among these 15 companies, there are a few that we have identified as a few of our favored short squeeze candidates:
Summer Short Squeeze Stocks: Abbott Laboratories (ABT)
Click to Enlarge Abbott Laboratories (NYSE:ABT), and the healthcare sector in general, is making a comeback and beginning to take a leadership role in the market rally as fears over political/regulatory changes have faded. Abbott Labs stock has outperformed the healthcare sector by more than 100% by returning nearly 20% since it bottomed in late June.
The rally in Abbott shares got a boost from a positive earnings report that propelled it to the top of its recent range where it sits now. The shorts haven’t blinked yet though as short interest on Abbott Labs increased 6% in the last report. This is actually the time that the shorts should be parsing back on bearish bets as a break to the upside will target a move back to its all-time highs of $52, about 14% from current prices.
Adding to our pros for the stock is a technically significant level. Currently, Abbott Lab’s shares are trading back in bull market territory after rallying above $44, the site of their 20-month moving average. This means that there is some limit to the likely downside that is far less than the current short-term upside, not good for the shorts. Watch for a short squeeze rally to take Abbott Lab shares to the $52 price point.
Summer Short Squeeze Stocks: Boeing Co (BA)
Click to Enlarge Boeing Co (NYSE:BA) along with a lot of industrial names, has had a tough go lately as the fear of a global economic slowdown hangs over the outlook for these companies. In this case, the short-term trade potential outweighs the long-term outlook as Boeing appears to be in position for a short-term breakout and short squeeze.
Shares have been consolidating in the $125-$135 range since March, compressing the shares into what we often refer to as a potential volatility swing. This happens when a company’s stock price tightens its range to the point where a breakout is more likely to occur, such is the case with Boeing.
The recent earnings report popped Boeing stock above this range for a day as profit-takers locked in post-earnings gains. This move set forth a little bit of positive momentum that has support from a confluence of technical trendlines. As a result, our charts suggest the next break above $135 is likely to gain traction and volume to the upside, which will pressure the shorts out of their positions and into the market as buyers.
Watch for the $135 price break to trigger a short covering rally that runs Boeing Company stock toward $150.
Summer Short Squeeze Stocks: Electronic Arts Inc. (EA)
Click to Enlarge Electronic Arts Inc. (NASDAQ:EA) continues to tear higher and show itself as a relative strength leader against the S&P 500 by gaining 13% year-to-date. Post-earnings rallies in Electronic Arts have been fast-moving. The company reported earnings earlier this week that popped the stock from technical support at its 50-day moving average, a bullish signal.
Short-sellers have more than nine times the average daily volume of the stock tied-up in bearish bets. This amounts to about 9% of the stock’s float. Currently, the short interest ratio for Electronic Arts is among its highest readings over the last two years, signaling that a short squeeze is imminent.
The stock is now trading a hair or two below $80, which represents new all-time highs for Electronic Arts shares. A break of the $80 mark is going to start pressuring the bearish short-sellers to close their losing positions, resulting in a short squeeze rally that will likely target $90.
As of this writing, Johnson Research Group did not hold a position in any of the aforementioned securities.