Special Report: Freshly Squeezed

From the Desk of Steve Strazza @Sstrazza

As our Premium Members already know, we have a laundry list of scans that we run internally on an almost daily basis.

Different market environments, naturally, are more conducive to certain scans and less so to others.

We think our “Freshly Squeezed” scan is perfect for the current market. With so many individual issues in massive drawdowns as the broader market begins to turn a corner, there are going to be some serious short-covering rallies in some of the most beaten-down names.

In fact, it’s already starting to happen. Infamous meme stock, AMC Entertainment $AMC was up 25% at its highs today (not on a closing basis).

Our scan is quite simple. It is designed to identify stocks with heavy short positions. When a stock is heavily shorted, it means there are natural incremental buyers. Bulls need incremental buyers, as this is the only way price can move higher. When shorts are proven wrong, they have to buy their shares back to close out their position. 

We pair this short-interest data with short-term momentum overlays, as this is the match that is needed to spark a short squeeze. 

So without further adieu, let’s take a look at what’s popping up on our radar right now and outline setups in some stocks we think investors can squeeze profits out of in the weeks and months ahead.

The table below only includes names with a short interest in excess of 20% and days to cover ratio of at least 2x. As always, there are also volume and liquidity filters, as well as technical overlays.

The list is sorted by short-interest but also includes 1-month performance and the percent above 52-week lows. This allows us to focus on stocks showing momentum in the near term.

The reason these short-term technical filters are necessary is that while a high short interest can act as an eventual tailwind to drive prices higher, something else has to start the squeeze in the first place. An earnings beat, positive headlines, analyst upgrades, even a technical breakout – it doesn’t matter, the stock just needs to rally.

Then once it begins to rise, the domino effect of short-covering comes into play and can cause a parabolic move higher.

So, just because a stock is heavily shorted doesn’t mean there is going to be a short-squeeze. The stock can go to zero without it ever occurring. We see this all the time.

Instead, it is the combination of short-term momentum and high short interest that are needed… Once these things are in place, the stage is set for an epic squeeze.

Let’s look at some of the names that stood out in our scan now.