The latest short interest report was released this morning, and as we anticipated, there are some great trading opportunities to be found by digging through the data.
First, the broad strokes: According to our data, short interest on S&P 500 companies dropped an average of 2% in the recent report, which isn’t a surprise given the strength that we’ve seen from the market. A strong December trend has started to squeeze the short sellers, forcing them to parse some of their positions.
While overall short interest on these companies may have declined slightly, there are some noteworthy increases that may be pointing to some great trading opportunities as we head into the new year.
As a group, retailers saw heavy additions to short interest as traders are clearly trying to time a top on these stocks. Retail stocks that saw the largest percentage increase in short interest include Limited Brands, Inc. (NYSE: LTD), Macy’s, Inc. (NYSE: M) and Target Corporation (NYSE: TGT). Of these companies, Target appears to be the best bullish play against the short sellers as the company’s stock has been on the rise, and sales and margins appear to be improving.
Backing up a bit, one of our favorite ways to view the data for trading opportunities is to look for companies that are technically sound, as measured by our technical models, yet have seen a significant increase in short positions. This analysis provides a list of companies that are more likely to see a short squeeze rally as short sellers get forced to close positions out as losses mount.
The table below displays the top 10 companies and exchange-traded funds (ETFs) on this list as of today. This list provides a great starting point for traders looking to benefit from potential short-term rallies, especially using call options. Since we mentioned retail earlier, take note that the SPDR S&P Retail ETF (NYSE: XRT) tops the list.
Given that the new short data has only been out for a few hours, we’ve just started to delve in. Over the next day or so, we will break this data down by sector, price range and technical patterns to generate a number of opportunities for the options traders in our Winning Edge trading service.
Feel free to send us an e-mail at chrisandjon@winningedgeoptions.com with comments or questions on this approach.
