‘Tis the season to be jolly? In a market made up of stocks, this year’s top celebrated and reviled, most-shorted stocks are offering bullish investors a different sort of narrative with price charts offering gifts to both naughty and like-to-play nice traders alike.
The ho-ho-hope is back on Wall Street. In Friday’s session the broader market was hanging on by a strand of silvery tinsel to gains manufactured this week following a brisk and now obvious “buying opportunity.”
Promoting the seasonal magic, the S&P 500 has rebounded by about 3.25% for the week. Moreover, the rally has reclaimed almost the entirety of a two-week corrective assault with the index back within spitting distance of all-time highs.
But the season of taking looks far different in the market’s most-shorted stocks with varied price action underscored by some of this year’s favorite publicly-traded toys for apish bulls, grouchy ol’ bears and regular investors alike.
And today, two-out-of-three price patterns agree on one thing. These most-shorted stocks may not be making the nightly news these days, but they’re still worthy of the gift of giving for traders of all ilk’s.
Most-Shorted Stocks to Trade: GameStop (GME)
Source: Charts by TradingView
The first of our most-shorted stocks to trade is this year’s most notorious as well. I’m talking about GameStop.
Without question it’s fair to say GME shares started 2021’s over-the-top short-squeeze movement at the hands, or rather, digits of ape-like Redditors on WallStreetBets.
And today, shares of GME stock have turned bearish.
Technically, a month-to-date multiple contraction of 23% has resulted in the failure of this year’s angular support line and 62% retracement level tied to the February-March rally cycle.
With this most-shorted stock’s weekly stochastics also looking very ominous, the observation is if you can’t beat GME’s vastly-thinned out bear camp, you should join those still remaining.
Go with a January $135/$110 bear put spread for reducing risk and amplifying returns on continued downside follow through into early next year.
AMC Entertainment (AMC)
Source: Charts by TradingView
The next of our most-shorted stocks to trade are shares of AMC Entertainment. If there was ever a best supporting actor to GME in this year’s meme-stock theatrics, AMC stock would be the clear winner.
Today however, a similar non-compete agreement of about 22% in AMC has led to a much stronger buying opportunity.
Technically, this acclaimed and detested most-shorted stock is now testing a bullish confluence of saucer or cup-like pattern support and 62% Fibonacci level tied to January’s pre-game lows.
Shares of AMC are also in position to form a modestly lower-low version of a double-bottom pattern relative to its August low.
For now I’d suggest monitoring AMC stock to confirm a pattern low next week and demonstrate some modest flattening or ideally, a bullish crossover of its oversold stochastics indicator before going long shares or gaining exposure in this most-shorted stock’s options.
Most-Shorted Stocks to Trade: Virgin Galactic (SPCE)
Source: Charts by TradingView
The last of our most-shorted stocks to trade are shares of Virgin Galactic.
Bulls and apes looking to the next frontier and boldly go where no man has gone before worked with the best of the market’s short squeezes on two occasions this year.
And as with the best of the best, it didn’t last. But the combined aborted missions are now setting up a deep double-bottom pattern worthy of seeing bluer skies ahead.
At the moment this week’s doji decision candle still requires price confirmation. But the tighter five-day pattern and an in-place stochastics crossover suggest it’s all systems go in SPCE stock and worth buying into today.
To better position for lift-off with less stress over any pre-mission calamities, a long Weeklys ’07 January $17 call looks like smarter business off and on the price chart.
On the date of publication, Chris Tyler did not have (either directly or indirectly) any positions in the securities mentioned in this article. 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.
