It could be the final straw to break the camel’s back — or more aptly, the back of today’s bull market. I’m talking about an influx of parabolic and high-profile short-squeezes. But right now, there’s money to made if investors know where to look and how to play the game in three heavily-shorted stocks to trade. Let me explain.
And you thought the electric vehicle (EV) market was a problem? Sure, Tesla (NASDAQ:TSLA) was up more than 700% in 2020. And there is that worrisome wave of blank check EV companies trying to cash in on some the action as well. QuantumScape (NYSE:QS). Blink Charging (NASDAQ:BLNK). Fisker (NYSE:FSR) or Workhorse (NASDAQ:WKHS) are but a handful of companies, good, bad, or ugly, which combined, warn that bulls have gone too far, too fast.
Alternatively, let’s not forget cryptos and blockchain, right?
Cryptocurrencies or altcoins and its tethered technology led by bitcoin (CCC:BTC) enjoyed a huge run in 2020 that many believe is a certain sign a top in risk assets is in the works. Yet, in a market with no shortage of reasons indicating investors should stuff their cash under the mattress, along comes an assault of epic proportions on heavily-shorted stocks to trade and the mother of all short squeezes.
Among today’s dizzying entertainment, theatre chain AMC (NYSE:AMC) has seen gains of around 550% this week with help from short interest of nearly 69%. Bed Bath & Beyond (NASDAQ:BBBY) was briefly up more than 70% on similar assistance from bearish operators. And space tourism play Virgin Galactic (NYSE:SPCE) with more than 80% of its float shorted, has rocketed higher by as much as 74%.
But of all the heavily-shorted stocks to trade out there, I’ve saved the biggest and best for last. Following Tuesday night’s Elon Musk fist pump style “Gamestonk!!” remark on Reddit, it’s the over-the-top price action in GameStop (NYSE:GME) that’s become the greatest show on earth — or rather, Wall Street. The action in GME stock is so spectacularly silly, I won’t even bother trying to spell it out. And as they say, a picture speaks a thousand words anyways. A hat tip in this strategist’s direction, however, is in order.
I laid out the case for a long GameStop position at InvestorPlace well ahead of today’s theatrics when shares were “only” fetching roughly $115 to maybe $120. That was all the way back on Monday. However, popular trading platforms like Robinhood are now restricting shares to be purchased of some of these popular stocks.
More importantly, and in the “what have you done for me now” department, I’ll discuss these three other heavily-shorted stocks still ‘mostly’ worth buying into. They are:
Now, let’s dive in and take a closer look at each one.
Heavily-Shorted Stocks to Trade: Beyond Meat (BYND)
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The first of our heavily-shorted stocks to trade are shares of Beyond Meat. The faux meat producer maintains a short float of around 28%. As one of this emerging market’s top companies and only listed pure play, there’s a lot to like about BYND stock. Toss in a market valuation of around $11 billion, a business that’s bringing home profits rather than bacon and there’s even more to sink one’s teeth into.
Shares of Beyond Meat have rallied strongly amid the feeding frenzy in heavily-shorted stocks. Technically, though, continued upside looks good. BYND stock’s highs have made toast of a bearish head and shoulders pattern with Tuesday’s high breaking the formation’s peak. The price action also put shares well inside the upper third of its lifetime base. Lastly, stochastics is trending higher inside neutral territory. Nice!
Favored Strategy: Modified Collar February $250 Call / ($180/$150) Bear Put Spread
Overstock (OSTK)
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Overstock is the next of our heavily-shorted stocks to trade. The embattled e-commerce retailer is another name I’ve discussed with readers and which the bears have it all wrong. It’s time for the stock’s short interest of about 16% to let go of worries OSTK stock is led by a madman or in a troubled business. Neither could be further from today’s truth.
With the company’s crazed founder removed from day-to-day operations, a fetching smaller valuation of $3.41 billion, huge retail comeback amid novel coronavirus and crypto market ace up its sleeve, I wouldn’t bet against Overstock. Moreover, with shares moving firmly out of a monthly chart bullish Gartley pattern to re-cross its 2018 high for a second time and stochastics on the cusp of a bullish crossover, this heavily-shorted stock is a buy today!
Favored Strategy: June $80/$110 Bull Call Spread
Heavily-Shorted Stocks to Trade: Luminar Technologies (LAZR)
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Luminar is the last of our heavily-shorted stocks to trade. This special purpose acquisition company (SPAC) startup specializes in light, detection and ranging technology also known as “lidar.” The company’s science is aimed at the autonomous or self-driving vehicle market. It promises to be critical in turning those dreams into a safer reality. Will it, though?
If LAZR stock bears fruit, the growth prospects are huge. And the company already has more than 50 industry partnerships which include seven of the top 10 global automotive OEMs. It’s enough to make a believer out of InvestorPlace’s Louis Navellier.
Luminar stock’s current 6% short interest begs to differ with Louis. As does well-respected Citron Research which made a timely warning when it called Luminar a “suckers game” back in December. However, it takes two to tango and Citron has had its share of fumbles, including a towel tossing short in GME stock.
Technically, this heavily-shorted stock has also just begun to make all the right moves for bullish investors.
As it stands, a bearish head fake modestly below triangular support in early January has been upended. Also promising, this week LAZR shares have rallied firmly above the pattern’s apex line, as well as four weeks of mostly lateral consolidation work. And with a neutralized weekly stochastics indicator in tow and carload of bears, this heavily-shorted stock looks poised for new highs and an unfolding uptrend in 2021.
Favored Strategy: May $45/$60 Bull Call Spread
Stocks owned: On the date of publication, Chris Tyler holds, directly or indirectly, positions in listed Bitcoin and Ethereum stocks (GBTC, ETHE and ETCG), but no other securities mentioned in this article.
Chris Tyler is a former floor-based, derivatives market maker on the American and Pacific exchanges. The information offered is based on his professional experience but strictly intended for educational purposes only. Any use of this information is 100% the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.
