It’s been scorching hot across much of the U.S. And in a show of unrelated sympathy, stocks in the country’s largest corporations have proven equally hot on Wall Street. What’s more, based on the price charts of today’s most-shorted stocks, size can also matter greatly when it comes to buying tomorrow’s sizzling winners. Let me explain.
What a difference a handful of trading days can make. Maybe not for some of the market’s notorious most-shorted stocks. High-short interest, large-caps GameStop (NYSE:GME) and AMC (NYSE:AMC) are both ending the period with losses. But elsewhere? Certainly.
A week ago, Wall Street was coming unglued with substantial declines and blameful fingers pointed at hawkish testimony from Jay Powell and Federal Reserve regulators. The venerable blue-chip Dow Jones shed 3.38% over the course of five days. A similarly slippery performance was put together by the large-cap, broad-based S&P 500.
Today though, and looking at major indices built upon Apple’s (NASDAQ:AAPL) largess or Microsoft’s (NASDAQ:MSFT) own two-trillion-dollar breakthrough, investors wouldn’t be wrong to ask, what was the big deal? Apparently, it wasn’t. At least not after an actual and real big deal entered the picture.
After months of negotiations, the Biden administration’s infrastructure deal saw a significant breakthrough this week. There’s a tentative agreement worth $973 billion over five years. Now and just one week later, muscular rallies in large-cap stocks allowed the Dow and S&P 500 to reclaim the entirety of the prior period’s losses heading into Friday’s closing bell.
So, what’s the whereabouts of those large-caps have to do with the market’s most-shorted stocks? AMC and GME are down and those are the large-caps of interest, right? Not entirely. It also depends on how and where one looks at those names. And today we’re interested in following the really big, heavily-shorted money in the market’s most-shorted stocks based on dollar-value and whose price charts are primed for buying!
Most-Shorted Stocks to Buy: Advanced Micro Devices (AMD)
Source: Charts by TradingView
The first of our highest dollar-value, most-shorted stocks to buy are shares of Advanced Micro Devices. AMD stock has roughly $6.80 billion in stock sold short. The amount is more than the bulk of publicly-traded mid-capitalization companies despite the chip giant’s stunning turnaround the past few years.
Today and if AMD stock’s price chart is any indicator, those bears are in for a rude awakening.
Technically, the monthly view reveals a confirmed bullish hammer low. With the candlestick also spoiling a neckline breakdown within a bearish head-and-shoulders pattern and sporting a well-positioned stochastics, this most-shorted stock has the ammo to rally to all-time-highs out of this pattern-busting entry.
One favored way to protect and serve investors trading accounts in this most-shorted stock is to buy the December $90/$105 bull call spread in lieu of AMD shares.
Sea Limited (SE)
Source: Charts by TradingView
Sea Limited is the next of highest dollar-value, most-shorted stocks to buy. Unlike AMD, investors may not have heard of SE stock. But the Singapore-based e-commerce play has been on the radar of growth traders due to items such as year-over-year sales growth of nearly 150%.
On the back of SE’s business success, shares ballooned by about 700% over the past year since 2020’s March Covid-19 bottom. Today Sea Limited maintains a fairly substantial valuation of around $150 billion. But the gains don’t appear over. And that’s bad news for the roughly $5 billion worth of stock betting against SE.
Technically, this most-shorted stock carved out a classic, confirmed double-bottom or W corrective base off its Covid-tied 38% Fibonacci level. With the mid-pivot’s initial buy decision cleared and shares now trading in a high-handle pattern, SE stock is a buy right now.
Here, I’d go with a September $300/$320 bull call spread given the size of the pattern and upside potential without fear of getting ahead of ourselves.
Most-Shorted Stocks to Buy: Tesla (TSLA)
Source: Charts by TradingView
The last of our highest dollar-value, most-shorted stocks to buy is the mothership of shorts of this kind. It’s Tesla. The EV behemoth has been atop this list of short-interest plays for more than a couple years. And like their predecessors, today’s $25 billion betting against Tesla should be worried.
Technically and similar to SE, TSLA stock is taking the shape of a bullish, high-level double-bottom. Shares have yet to confirm the second pivot low in the base, let alone the pattern’s classic mid-pivot buy decision. But I like what I’m seeing.
With June’s monthly inside candlestick able to complete next week and stochastics a whisker away from signaling a bullish crossover, TSLA looks compelling. Moreover, if shares confirm the pivot low investors will have the chance to buy one of the market’s top growth stocks at a technically-advantaged discount.
To better prepare for an electrifying rally with less worry of being a crash-test dummy in the event this most-shorted stock takes a U-turn, I’d suggest the December $750/$900 as a well-placed vehicle capable of delivering on all counts.
On the date of publication, Chris Tyler holds (either directly or indirectly) positions in Advanced Micro Devices (AMD) and its derivatives. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Chris Tyler is a former floor-based, derivatives market maker on the American and Pacific exchanges. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.
