Short interest on the S&P 500 Index is finally on the rise as short interest for the period ended in mid-February showed a 4.6% rise in bets against stocks. This is the largest percentage increase in short selling that the S&P 500 has seen in aggregate in more than a year.
The increase eases some concern that the market was getting too optimistic for its own good, thus setting itself up for a classic crowded market correction. While a correction of this sort is still on the table (and quite frankly would be healthy for stocks at this point), rising short interest often represents a Wall of Worry that stocks can use to climb higher.
Our database models filtered through more than 7,000 stocks to identify 50 that are currently maintaining bullish trends while seeing increases in already relatively high short interest. These short squeeze stocks represent the current short squeeze candidates and should be eyed as stocks that are likely to outperform the market.
The table above displays the top ten candidates from this list based on their strong technical performance and recent short interest activity. Of this list, we’ve the following three stocks are some of the most promising short squeeze candidates.
Short Squeeze Stocks to Buy: VeriFone Systems Inc (PAY)
VeriFone Systems Inc’s (NYSE:PAY) short interest has gone through the roof as traders are betting heavily against the stock. The current ratio represents the highest reading of this indicator in the last two year.
The surge in PAY’s short interest ratio is accompanied by a technical turnaround as shares of VeriFone are now trading above their three major trendlines. Recently, the 50-day moving average completed a cross above the stock’s 200-day moving average, forming a Golden Cross. This pattern is widely recognized as a bullish signal for the underlying stock.
VeriFone shares are coming off an overbought reading after a positive earnings reaction. This leaves room for PAY stock to make its next move higher towards a break above $21.50, which has been a historic sticking point for the stock.
Consider $21.50 as a potential trigger for a short squeeze rally that could send shares towards $24.
Short Squeeze Stocks to Buy: Carnival Corp (CCL)
After a rough start to 2016, Carnival Corp (NYSE:CCL) turned things around to rebound more than 25% from July to its current share prices. However, CCL stock has yet to shake the bearish short sellers out of its positions.
Currently, the short interest ratio for Carnival is sitting at its highest level in more than two years. The reading of 9.1 suggests CCL stock is ripe for a potential short-squeeze rally, all that’s missing is a trigger.
Enter the upcoming earnings results, expected to be released (not confirmed yet) on Mar. 29. Carnival stock has had a good track record with beating estimates of late, suggesting that a surprise could act as a trigger for the short sellers to turn to buyers.
On an intermediate-term basis, CCL remains a strong performer. Carnival stock has tracked well with the market and it continues to see building momentum from the stock’s intermediate-term trendlines.
CCL shares have consolidated around $56 since January as traders appear unconvinced that the stock would have a chance of breaking higher.
For this reason, a break above the $57-level is likely to act as the trigger for a potential covering rally.
Short Squeeze Stocks to Buy: Valley National Bancorp (VLY)
Regional banks continue to lead the market as interest rates are clearly set to move higher. The regionals have been consolidating lately as traders have been withdrawing some profits, but this is more than likely a pause that will just refresh this group, including Valley National Bancorp (NYSE:VLY).
Short interest is far from its highs for Valley National, but the data still shows signs that a short covering rally could carry VLY stock higher.
The current ratio of 8.6 reflects the addition of short positions to Valley stock in the last two weeks, telling us that the market is expecting VLY to break technical support that has been supportive of the stock’s rally since September 2016.
We have seen a consolidation at $12.50 for the last few weeks with a poke or two above the chart resistance. We expect a significant move above that price to force the shorts to begin covering their bearish bets turning them into buyers of the stock and pushing our trade higher.
As of this writing, Johnson Research Group did not hold a position in any of the aforementioned securities.