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. In fact, we wrote our initial report in December just to be sure we wouldn’t miss the moves that have taken place in recent weeks. We’re confident there is more to come.
With so many individual issues in massive drawdowns as the broader market begins to turn a corner, we’re witnessing some serious short-covering rallies in some of the most beaten-down names.
In fact, it’s already starting to happen. Bed, Bath & Beyond $BBBY was up by almost 100% the other day. It’s very likely they’re going bankrupt. But that’s just the kind of market we’re in.
Our scan is quite simple. It is designed to identify stocks with the highest short positions. When a stock is heavily shorted, we know there are incremental buyers waiting in the wings.
We love this as new buyers are the one true catalyst for higher prices. When shorts are proven wrong, they have to buy their shares back to close out their positions. And when they do, and momentum starts moving higher in these shorted names, it is not uncommon for massive rallies to occur.
For this reason, we pair short-interest data with short-term momentum overlays, as this is the match that is needed to spark a squeeze.
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.
We’ll also give an update on some of our long ideas from December’s report.
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.
Before we dive into the list, here is a reminder of why we do this.
This bubble chart shows the explosive moves that are currently taking place in some of the most heavily-shorted names.
From December’s report, Beauty Health Co $SKIN, Figs Inc $FIGS, and Dillard’s $DDS stand out as all have been moving steadily toward our target this year.
While SKIN still has a hefty short interest of 25%, the amount of shares held short in FIGS and DDS have come down considerably since our last report.
With short interests below 20%, neither are on our list anymore. Despite the reduced squeeze potential, these names have been working for us, and we still like them.
Not only is Coinbase $COIN on our list again, but it has moved higher as the percentage of shares held short has increased by about 5%. We took profits at our target last week.
The second most-shorted name on our list, Carvana $CVNA, saw its short interest increase from 43% to 58% since December.
After collapsing into the end of the year, CVNA hooked higher and has rallied more than 5x in a little over a month. It triggered our entry at 8.25 just two weeks ago and came within pennies of our $20 target last week.
We still like CVNA from a squeeze perspective as the stock is experiencing heightened volatility with massive intraday rallies on an almost daily basis. With that said, we only want to buy it back toward our risk level.
This one is not for the faint of heart. And neither is this next one.