Short sellers have been busy preparing for a decline in the market. According to the latest short interest report, aggregate short interest on the S&P 500 component companies has increased by 2.4%. That might not sound like much, but that increase registers as one of the largest moves in the past six months.
The increase in shorts suggests that the market may continue to buck the normally negative seasonality that comes as the calendar changes to the month of June and the market climbs the “Wall of Worry.”
We have filtered through the technical and short interest trends of the S&P 500 companies to find potential short squeeze stocks. These are the stocks that show the highest probability of seeing the shorts press stock prices higher as they are forced to close losing positions.
As usual, we like to profile three companies that stand out from our models’ perspective as short squeeze stock candidates. So here’s a look at the three best opportunities we see right now.
Short Squeeze Stocks to Buy: Verisign (VRSN)
Verisign, Inc. (NASDAQ:VRSN) shares saw a tepid reaction to their earnings news last quarter as the outlook for the stock wasn’t as exciting as investors had hoped. Since then, VRSN has been trading in a relatively tight range outlined by $90 and $91.50.
Short sellers have increased their positions slightly, resulting in a short interest ratio of 16.2. This is in the top 1% of short interest ratios within the S&P 500.
The fact that short sellers are betting against a company that is up roughly 19% year-to-date and is in one of the stronger performing sectors puts Verisign right on top of the list of stocks to benefit from a short covering rally.
Look for a move above $92 to send the shorts into the market to cover their losing bets on VRSN, which will help this short squeeze stock target a range between $97.50 and $100.
Short Squeeze Stocks to Buy: Garmin (GRMN)
Another stock that got no love from a good earnings report is Garmin Ltd. (NASDAQ:GRMN). Since their report in April, the stock has been range-bound between $51 and $53 as traders have been backing off the stock.
In Garmin’s case, we’re watching the technical picture closely as GRMN is getting ready to benefit from rising support. The 50- and 100-day moving averages are ascending and creeping up to $51. This should add a technical catalyst to break the stock higher.
We’ve seen some analyst activity of late that should help Garmin stock. After earnings, a number of firms began raining targets on this underloved stock. We expect additional activity on this front, which will help to spark buying.
A break above $53 will likely act as the catalyst for the next short covering rally on Garmin stock. In fact, our models target the covering rally to elevate this short squeeze stock to the $56-$58 range.
Short Squeeze Stocks to Buy: Cintas Corporation (CTAS)
The jobs market is still showing signs of expansion and businesses are growing. This is good for companies like Cintas Corporation (NASDAQ:CTAS) that provide a variety of services from uniforms to industrial products that make companies run.
The stock saw a nice rally after its latest earnings report, which was followed almost immediately by a “sell the news” selloff to support at the Cintas’ 100-day moving average.
Short sellers have been closing their positions in CTAS, but the stock’s short interest ratio still registers a 9.4, well within the range of readings that our models designate as bullish with the potential of a covering rally.
We just saw the stock move back above its 50-day moving average within the last week. This trendline is also moving higher, which our models designate as bullish. The move above this trendline and a break above $126 should combine for the next round of short covering to push Cintas stock higher.
We’re expecting to see the covering rally push shares of CTAS above $130. For this reason, it would be a good idea to keep an eye on this, as it is one of the most promising short squeeze stocks to buy.
As of this writing, Johnson Research Group did not hold a position in any of the aforementioned securities.