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3 Most-Shorted Stocks Offering Pullbacks to Buy

most-shorted stocks - 3 Most-Shorted Stocks Offering Pullbacks to Buy

Source: Shutterstock

It’s been a mixed but largely indecisive week for bulls and bears in the major averages to close out a burly month of gains. But today and in three of the market’s most-shorted stocks, the show for bulls may just be getting started.

Heading into Friday’s closing bell, bulls have hit the pause button. Blue-chips in the Dow Jones are poised to finish the five-day period off marginally by about 0.50% and confined to an inside weekly doji.

Overall though, it’s been a good month offering those investors a return of about 2.50% just off record highs as we close out April.

The price action in the bellwether index is also far from unique. Similar overall success capped by a bit of fatigue this week can be spied in both the S&P 500 and Nasdaq Composite. But in a market made up of individual companies, some of today’s most-shorted stocks look primed for a bullish rotation and back into the spotlight. Well, kinda, sorta.

  • MicroVision (NASDAQ:MVIS)
  • Clover Health (NASDAQ:CLOV)
  • Skillz (NYSE:SKLZ)

Primetime news coverage like investors witnessed in heavily shorted stocks earlier this year isn’t likely. Nor are quick riches similar to GameStop (NYSE:GME) or promises of the Amazon (NASDAQ:AMZN) or Tesla (NASDAQ:TSLA) guaranteed. Nevertheless, the following most-shorted stocks are shaping up as well-positioned pullbacks that could be the start of a much stronger game to come for bullish investors.

Most-Shorted Stocks to Buy: MicroVision (MVIS)

MicroVision (MVIS) pullback into triangle support
Source: Charts by TradingView

The first of our most-shorted stocks to buy is MicroVision. MVIS maintains short interest of about 20%. The laser scanning tech outfit has been popular in recent days with the Reddit crowd driving shares aggressively higher out-the-gate this week to relative highs more than a decade in-the-making. But the fun at the expense of bears such as Hindenburg Research has quickly come home to roost.

A quick profit-taking pivot in MVIS stock has turned into a complete technical retreat following an earnings disappointment. Still, with Mad Money’s Jim Cramer giving MVIS a recent, cautiously bullish shout-out and shares now stationed back inside key pattern zone support, this most-shorted stock is offering an area to consider going long.

Today, I’d simply suggest monitoring the action next week for price stabilization from roughly $12.50 to $15. I’d like to see a bottoming candle fully form before pulling the trigger. Should that occur, an intermediate-dated, slightly out-of-the-money bull call spread would be a go-to way to capitalize on a bullish resumption of MVIS’ uptrend.

Clover Health (CLOV)

Clover Health (CLOV) weekly chart bearish engulfing candle toppled
Source: Charts by TradingView

The next of our most-shorted stocks to buy is also a SPAC (special purpose acquisition company). Clover Health was brought public by Social Capital Hedosophia Holdings. The Medicare Advantage insurance company is pioneering a fundamentally different approach to this market using technology and physician partnerships.

Technically and today, broader SPAC-induced hemorrhaging beneath its sponsor’s prior $10 net asset value (NAV) has been reversed. I like seeing that. What’s more, the price action has toppled a large engulfing weekly candlestick after several weeks of inside stock consolidation. With stochastics properly aligned and trending out of oversold territory, this most-shorted stock looks like a certain buy in our estimation.

To avoid any future stock-related health issues, a June $10/$14 collar for about 75 cents over parity is a great Rx for investors wanting to make CLOV stock a core holding with greater authority.

Most-Shorted Stocks to Buy: Skillz (SKLZ)

Skillz (SKLZ) strong volume and price signs that it's game time for bulls to go long following simple pullback
Source: Charts by TradingView

The last of our most-shorted stocks to buy is mobile esports platform Skillz. It’s already big with Main Street offering successful games, tournaments and real money prizes. It’s the kind of stuff which has helped Skillz capture sales growth of nearly 95%. Nice, right? At the same time, it hasn’t been an easy game owning SKLZ stock. That there’s reason to be optimistic.

Conditions are shaping up on the price chart to make SKLZ a great win for investors. Technically, a hard-hitting corrective slide off SKLZ’s February high has found proof this week of the bearish cycle concluding. And it’s one that looks worth buying into today.

A bullish, record volume engulfing candlestick received follow-through confirmation on Monday. Investors have applied the brakes on the signal’s initial enthusiasm, but that doesn’t look like a bad thing. With a simple four-day pullback forming inside the supportive candlestick pattern and an earnings catalyst next week, this most-shorted stock offers a one-two combination for bulls to reclaim lost ground.

Without getting ahead of ourselves and earnings reactions always a tricky nut to predict, a May $20/$22.5 bull call spread is one favored strategy to leverage a win for the home team bulls, while minimizing losses in the event of a TKO.

On the date of publication, Chris Tyler does not hold,  directly or indirectly, any positions in 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.

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