Short squeeze hunters, perk up. Wall Street’s short sellers are starting to load up across various parts of the market as we head into the seasonally weak trading period of August and September.
The S&P 500 index normally returns around -0.2% during the month of August, putting it in the lowest quartile of monthly performance for the year.
But wait. It gets worse.
August also has been negative for stocks 53% of the time over the past 20 years, making the eighth month of the year dead last in terms of win-loss percentage.
That’s a long way of saying that I don’t begrudge the shorts. However, there are areas of the market where short interest is piling up despite clear technical leadership and strength. These are the kinds of stocks that are ripe for the picking, as they’re full of kindling for an eventual short squeeze.
We’ve culled a list of 20 top short squeeze candidates to come to this select list of three stocks to buy for a contrarian push. We expect good news and continued technical strength through the typically negative month of August will put more pain on the shorts, forcing them to close their positions by purchasing more shares … sending them even higher.
Short Squeeze Stock Picks: Best Buy (BBY)
Best Buy Co Inc (NYSE:BBY) blew Wall Street’s mind in late May by delivering a stellar first-quarter earnings report and outlook. BBY shares surged, then pulled into a consolidation once traders tried to lock in profits on this longer-term laggard.
However, BBY shares are improving on the technical front once more as we approach the company’s Q2 earnings report due out Aug. 29. The stock is trading above its key trendlines, and we expect to see investors move into the stock ahead of its quarterly report — bad news for the shorts.
Best Buy shares on Monday broke above the $61.50 level, which is where the stock spiked after last quarter’s earnings. Traders will take note and start accumulating at this “trigger price,” meaning a short squeeze is likely already in the starting phase.
Watch for a short squeeze to $67.50 ahead of earnings, good for a roughly 10% gain in less than a month.
Short Squeeze Stock Picks: Kohl’s (KSS)
Following the “brick and mortar retail may not be dead” story, shares of Kohl’s Corporation (NYSE:KSS) are making a technical rebound right when the bears thought KSS was squarely in their cross hairs. Short interest for Kohl’s currently sits at 10.2, and short interest is 20% of the stock’s outstanding shares.
KSS has mounted a technical recovery that just improved with a shimmy above the 200-day moving average during Monday’s trade. This alone should bring more buyers into the market, but there’s more. Kohl’s 50-day moving average recently transitioned into a bullish pattern, improving the technical outlook.
Our model identifies $44 as the “trigger price” for a short squeeze rally. However, the break above the 200-day today should also get the shorts running.
Keep your eyes peeled on Thursday morning, when Kohl’s reports second-quarter earnings.
Short Squeeze Stock Picks: Plug Power (PLUG)
Last up is Plug Power Inc (NASDAQ:PLUG), which you’ll need to pay immediate attention to — the company announces earnings ahead of the market open Tuesday, and shorts are heavily betting against the stock.
The current short interest ratio on Plug Power shares tips the scale at 16.5, and that short interest represents almost 20% of the stock’s outstanding shares. This means PLUG is ripe for a shot-in-the-arm rally.
Technically, shares of Plug Power have been trading with staunch support from their 50-day moving average, which is trading higher as well. The pressure this puts on the short sellers indicates we’re likely to see a “trigger price” of $2.60 as the catalyst for the short covering rally. Even if traders aren’t in before tomorrow’s market open, and PLUG jumps, don’t worry — there should be plenty more upside juice as short sellers unwind their positions.
As of this writing, Johnson Research Group did not hold a position in any of the aforementioned securities.