3 Most-Shorted Stocks Sporting Classic Buy Patterns

most-shorted stocks - 3 Most-Shorted Stocks Sporting Classic Buy Patterns

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It’s was a bumpy week in more than a few places on Wall Street. And that includes many of the market’s most-shorted stocks. More importantly, in select well-traded stocks with above-average short-interest, the sum total of those wild ups and downs are big-time chart patterns in position to buy as we’ll explore below.

You wouldn’t know it looking at the cumulative total of four days of trading with blue-chip indices hoovering near flat performances for the period. But the shortened holiday week has been volatile under the surface.

Worries over economic growth and plummeting bond yields dismantled broader market trend support built over the past month during Thursday’s session. It also produced the largest losses for the broader averages since June’s slightly more aggravated and quickly forgotten assault on Wall Street’s reinvented Roaring 20s bull market.

Unsurprisingly, fears proved bearishly inescapable for many of the market’s most-shorted stocks. It was a chance for larger bear populations to take advantage of having the wind at their back. And dings to price charts of large-caps with high-dollar short-interest such as Tesla (NASDAQ:TSLA) and Advanced Micro Devices (NASDAQ:AMD) are a testament to that determination. Well, kinda sorta.

  • Virgin Galactic (NYSE:SPCE)
  • AMC (NYSE:AMC)
  • Carvana (NYSE:CVNA)

But today is today. And once again a lasting surrender doesn’t appear to be in the skillset of Wall Street’s bullish base. If you can’t beat them, join them? Maybe not. Still, when it comes to the market’s most-shorted stocks, today there are three popular names to ride that optimistic determination backed by classic corrective bases.

Most-Shorted Stocks to Buy: Virgin Galactic (SPCE)

Virgin Galactic (SPCE) volatile handle forming within deep cup base
Source: Charts by TradingView

The first of our well-traded and most-shorted stocks to buy is Sir Richard Branson’s Virgin Galactic with short-interest of 22%. In late June SPCE shares received a rocket-like booster of 39% following critical FAA licensing which allows Virgin Galactic to fly passengers 50 miles into orbit.

The clearance  sets the stage for an expected start to Virgin’s commercial operations in early 2022 after development delays the past couple years. I suppose we’ll have to wait and see if that goal is met. But as investors in SPCE stock right now, the space tourism operator’s shares show a launch-ready price chart.

Technically, this most-shorted stock is stationed in the upper right side of a large and deep corrective cup-shaped base. With action since the FAA announcement forming a wide, but well-supported handle consolidation, SPCE stock has “the right stuff” to break out to new all-time-highs.

Wait on a handle breakout accompanied by a stochastics crossover. If those conditions are met, then consider an intermediate-dated, slightly out-of-the-money bull call spread for out-of-this-world returns and unparalleled safety.

AMC (AMC)

AMC (AMC) daily chart second pivot within double bottom sets up for nearby purchase
Source: Charts by TradingView

AMC is the next of our well-traded and most-shorted stocks to buy. AMC stock’s short-interest isn’t the highest out there at roughly 17%. It’s still up there though. And undeniably, the more than $5 billion in short stock wagering against the theater chain does make it one of the largest shorts in the market on a dollar basis.

Most recently, a move by CEO Adam Aron to placate his meme-trading Reddit base and scuttle a secondary backfired. And it wasn’t without just cause. Mr. Aron’s “I see you, I hear you, I value you” decision nixed AMC’s ability to extinguish its remaining debt and build its cash war chest.

Today is today though. This is a forward-looking market that’s putting together a very bullish corrective double-bottom pattern in AMC. My thoughts are bullish investors will be cheering wildly in the near future.

With stochastics oversold and bullishly-positioned, a nearby daily chart confirmation of the pattern’s second pivot low is the matinee ticket for a solid-looking seat in front of the breakout crowd. Should that occur, I’d go with an August $50/$60 bull call spread in lieu of buying this most-shorted stock.

Most-Shorted Stocks to Buy: Carvana (CVNA)

Carvana (CVNA) double bottom handle breakout
Source: Charts by TradingView

The last of our well-traded, most-shorted stocks to buy is Carvana. About 24% of CVNA’s shares are currently shorted representing nearly $5 billion in bets against the e-commerce auto dealer. And with average daily volume of about 1.55 million shares, CVNA’s days-to-cover ratio stands at a very steep 11 days.

Do the bears know something? Obviously, with Covid-19 almost in the rearview mirror this most-shorted stock may appear like a lay-up for bears. Everyone wants to walk unmasked through the doors of their neighborhood auto dealer again, right? And that would be bad news for this most-shorted stock if it were true.

But things are rarely so simple. And right now there’s the wild card of a global new car shortage that’s benefiting Carvana.

Technically and today, there’s also a nice-looking confirmed handle breakout within a large, slightly-flawed double-bottom base that should be of significant help to this most-shorted stock’s bullish investors.

My advice is go ahead and park some capital in an August $330/$350 bull call spread for leveraged upside potential and avoiding the risk of becoming a crash-test dummy.

On the date of publication, Chris Tyler holds (either directly or indirectly) positions in Advanced Micro Devices (AMD) and their 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.


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