As every investor knows, few things are more exciting than pinpointing a short list of stocks that are ready to pop, and then seeing your research come to fruition. We been in this business for a combined 30 years, and we can tell you that watching a stock’s technical picture in conjunction with its short interest activity provides a reliable list of stocks that are ready to do just that.

We’ve put together a list of companies that have seen increases in short interest while the underlying stock has seen a bullish reversal. In other words, this is a list of companies that short sellers have been betting against, despite their improving price patterns. The improving price pattern of these stocks means that the short sellers will soon get squeezed to the point that they are forced to close out their losing positions. Remember, being short a stock has unlimited downside potential as the shorted stock rallies, and this means that these companies are more than likely to spawn buying interest from the shorts as their technical picture improves.

Keep reading to take a look at a few of these in detail.

Next: Iron Mountain (IRM)

Stock to Buy #1: Iron Mountain (IRM)

Short sellers have been adding to their positions on Iron Mountain Incorporated (NYSE: IRM) as the stock has been gaining some ground above $24. The stock has spent much of May and June trying to punch lower, but the price trend now appears to be firming up. 

With 8.5 times its daily average volume tied up in short interest, there is a good chance we’ll see the stock benefit from a short-covering rally as it breaks above the $25 mark.

We like the odds that it will revisit $28 before the end of summer.

Next: Wipro Ltd. (WIT)

Stock to Buy #2: Wipro Ltd. (WIT)

Indian technology company Wipro Limited (NYSE: WIT) has rallied 10% since the beginning of June, placing what appears to be a hard bottom for a summer rally. Despite this, the short sellers have been relatively active on this stock. The latest short interest data shows that the shorts have already started unwinding their positions by buying the stock in the marketplace, helping to fuel the short-term rally. 

That said, the stock still has 12.4 times its average daily volume tied up in additional short interest. Look for the rest of the shorts to cover their stock and the price to rally to $24.

Next: iShares Nasdaq Biotechnology Index (IBB)

Stock to Buy #3: iShares Nasdaq Biotechnology Index (IBB)

We thought that we would throw an exchange-traded fund (ETF) in the mix today for those investors looking to diversify their portfolios.

The Nasdaq biotechnology sector has been on the rise, as evidenced by the rising iShares Nasdaq Biotechnology Index (NASDAQ: IBB) shares. Short sellers have more than six times the average daily volume sold against the stock, meaning that the recent rally is inducing some pain. 

Watch closely as the stock tries to move above its 200-day moving average at $83.42. We’re betting that you will see a rush to cover these losing short positions at that point, driving the stock higher toward $88-$90.

Next: Moody’s (MCO)

Stock to Buy #4: Moody’s (MCO)

Embattled rating agency, Moody’s Corporation (NYSE: MCO), has taken more than a few shots lately as Congress and everyone else has taken critical aim at their business practices. 

As one would expect, the “easy money” short sellers have tried to make some money on the obvious pressures on MCO, but it looks like they’re too late. MCO’s short interest popped last month to about seven times its average daily volume, but there’s a catch. With MCO’s stock rallying from below $20, the shorts are already feeling pressure from betting against Warren Buffett. 

We think that you’ll see the shorts close their positions, adding to the buying pressure on MCO over the next month or so.

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