Short sellers continue to increase their bearish bets against a number of stocks according to the latest report, despite the market’s slow burn higher. This, of course, generates a target-rich environment for those of us that are looking for short-squeeze opportunities.
Our latest short-squeeze stocks model returned more than 50 potential candidates from the Russell 1,000 that meet the requirements for potential short squeezes. For those unfamiliar, a short squeeze happens when short sellers are forced to close losing positions as a stock continue to move higher, against their bet. In almost all cases, this shows itself as a sudden increase in buying pressure as the shorts scramble into the market as buyers, pushing a stock’s price even higher.
According to the charts and short interest trends, the following three companies appear ready to apply pressure to the short sellers, triggering an aggressive rally …
Short-Squeeze Stocks to Buy: Best Buy (BBY)
Last quarter, Best Buy Co Inc (NYSE:BBY) rocked the short sellers by coming in with blockbuster number. A short squeeze rally ensued that helped drive the stock more than 20% higher. After some consolidation, the short sellers are back again, as the short interest ratio for Best Buy currently stands at 10 times the average daily volume.
The recent pullback in the shares may have moved in the right direction for the Best Buy bears, but technical support for the stock appears strong. Best Buy’s 50-day moving average has been in a bullish trend and the stock’s 100-day trendline is currently providing support.
As the stock begins a potential recovery, the short sellers are likely to start getting nervous. As it stands now, the potential “trigger price” for a covering rally is $57 with a target price of $61.
Short-Squeeze Stocks to Buy: CarMax (KMX)
Demand for automobiles and other discretionary items has been on the rise as confidence in the economy grows. While this is good for the auto manufacturers, it is also positive news for companies like CarMax, Inc (NYSE:KMX) that deal in preowned vehicles.
CarMax’s fundamental picture has been improving as the company has posted five consecutive quarters of rising revenue. The increased sales have also resulted in the company’s bottom line earnings per share beating analyst estimates. In other words, the fundamental picture has been strong for shares of CarMax.
Technically, we’ve seen the stock transition into an intermediate-term bullish trend. Last month, shares of CarMax found strength at the confluence of their 50- and 200-day moving averages as these trendlines were forming a bullish “golden cross” pattern.
Short sellers are on the hook for 26,129,400 shares, which equates to more than six times the average daily volume. These short positions will start to feel the squeeze as CarMax shares approach the “trigger price” of $67.50. From there, our models estimate that the stock is likely to target the $72 level as short sellers close their losing positions.
Short-Squeeze Stocks to Buy: Ball Corporation (BLL)
Ball Corporation (NYSE:BLL) is one of those companies that do it all. From packaging to aerospace applications, the company is a cross section of the economy. Given that, the company’s fundamental picture has been on the mend along with the economy.
Shares of the manufacturing giant are on a tear, rallying more than 8% after their last earnings report and stock split. Technical support is also growing for the company, as the stock is now posting new all-time highs along with the market.
You wouldn’t know this by looking at the short interest activity on Ball Corporation though, as the current short interest ratio stands at more than 8 times the average daily volume. In addition, the level of short interest is equivalent to about 12% of the stock’s float. This means that there are fewer shares, relative to those shorted, available for the short sellers to buy in order to close their positions out. This often results in more aggressive rallies.
With a “trigger price” of $43, Ball Corporation is very near the tipping point where we expect to see the shorts start to capitulate, causing a rally that will likely target a 5%-10% move higher.
As of this writing, the Johnson Research Group does not hold a position in any of the aforementioned securities.