Retail’s 3 Most-Shorted Stocks to Trade

  • Buying and shorting opportunities exist in retail’s most-shorted stocks after key large-cap earnings trouble.
  • Big 5 Sporting Goods (BGFV): Decent fundamentals, big dividend, an overly bearish chart and sentiment set up hedged buy in BGFV stock.
  • Macy’s (M): Nearby earnings catalyst and weak chart with downside offer bearish trade.
  • Carvana (CVNA): Receives bullish analyst nod as oversold CVNA stock moves into key long-term testing position for contrarian buyers.
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Bears are back to the business of squeezing bulls on Wall Street this week. And far from being left out of the de-risking activity, many of the market’s most-shorted stocks are seeing larger losses for very high profile reasons.

It’s looking like a Mulligan for investors bargain-hunting off last week’s oversold bottom. Heading into Friday’s close a broad-based rally attempt is hanging on by a thread in the S&P 500 and already dismantled in the Dow Jones Industrials with the blue-chip average down nearly 4% for the five-day period and hitting new year-to-date lows.

Troubling earnings releases from retail giants Walmart (NYSE:WMT) and Target (NYSE:TGT) this week have investors increasingly concerned that inflation and at-risk consumer spending will continue to undermine corporate profits. And unsurprisingly, retailers with heavy bearish interest have been hit hard.

Today though, let’s examine three of retail’s most-shorted stocks in the thick of the action and set investors up for buying and shorting opportunities.

BGFV Big 5 Sporting $12.08
M Macy’s $18.07
CVNA Carvana $33.13

Big 5 Sporting Goods (BGFV)

Big 5 Sporting Goods (BGFV) has the look of a hated underdog that's due for a bullish cycle
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Source: Charts by TradingView

Big 5 Sporting Goods (NASDAQ:BGFV) is the first of retail’s most-shorted stocks to trade. And BGFV stock is a buy, with the caveat investors will want a great defense to prevent potentially getting sacked downfield.

Shares of BGFV maintain short interest of 43%. The sports retailer is down more than 15% on the week and hitting new one-plus year lows. Technically, this most-shorted stock’s weekly chart reveals a pinched and now widening Bollinger band pattern and BGFV trending bearishly along the lower indicator line.

Honestly, it looks ominous. But here’s the thing. Big 5 Sporting Goods announced a profitable earnings beat on sales which largely matched street forecasts earlier this month.

Moreover, while a Covid-related boost tied to folks flocking to the great outdoors has played itself out and revenues are squarely back at pre-pandemic levels, profits of 41 cents are five-fold same quarter results of 8 cents from 2019 suggesting there’s operational improvements worth buying into.

Along with a well-supported 8.29% dividend and payout ratio of just 23%, positive cash flow and obviously bearish sentiment, it’s time to bet on the underdog. I’d suggest buying this most-shorted stock with an actively-managed and fully-hedged collar on shares.

Macy’s (M)

Macy's (M) bearish trending sets up downside challenge of $12 support area following earnings
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Source: Charts by TradingView

Macy’s (NYSE:M) is the next of our most-shorted stocks to trade in the retail sector. And in my estimation M stock is shaping up as a short or a closing sale if you’re long shares.

The iconic mall retailer is set to announce earnings next Thursday. The event could provide significant profits for investors wagering against this most-shorted stock today if M stock reaffirms WMT’s and TGT stock’s warnings with its own disappointing results.

In fairness, Macy’s has consistently beat profit forecasts over the past year and enjoyed a couple massive upside reactions. But given the weaker operating environment, it’s overly-hopeful that’s going to happen again.

Technically, a trendline failure this month sets up this most-shorted stock for a deeper corrective test before a bottom might play out. With the next area of significant support near $12 a share (down channel and 76% level), M is a most-shorted stock to trade through the earnings event with an eye on a downside reaction.

I’d go with a Weeklys May 27 $16/$14 for leverage and maximizing profits if correct, and ironclad protection and reduced premium exposure in the event of a bearish misstep.

Carvana (CVNA)

Carvana (CVNA) oversold testing position of Covid bottom
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Source: Charts by TradingView

Carvana (NYSE:CVNA) is the last of our retailer most-shorted stocks to trade. This one has been such a  car wreck that parking a small amount of risk capital into CVNA as a buyer looks like the right strategy.

Off the price chart, in late April CVNA reported a much wider-than-expected loss and job cuts. The announcement rattled investors as shares slumped more than 10% to a near two-year low in the immediate aftermath.

But now and with shares off roughly 70% since earnings and 92% from last summer’s all-time-high on almost daily reminders of how bad conditions are for used vehicle buyers, a purchase of CVNA stock, without the sticker shock, is taking shape.

Bank of America agrees. This morning an analyst note said that despite macro headwinds Carvana is “a fundamentally better way for consumers to shop for and buy used cars.”

The brokerage retained its buy rating, but slashed its price target from $225 to $80. However, the share revision still commands a premium of 153% versus this most-shorted stock’s market price of $31.60. What’s more, there’s a nearby catalyst for combustible upside with shares in an oversold testing position of CVNA’s March 2020 Covid-19 bottom on capitulation style volume.

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.

The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.


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