Despite our cautious outlook for Equities, there’s one stock setting up for a potential short squeeze…and the skewed reward/risk has gotten our attention.
Let’s take a look.
First, we’d suggest reviewing our “short squeeze” playbook which outlines the characteristics we look for in mean reversion/short squeeze setups.
Today we’re looking at Reliance Infrastructure, which has been one of the worst stocks on the planet for a long time…but now prices are beginning to stabilize as momentum diverges positively. From our perspective, it’s finally worth a shot on the long side if prices are above 18.00. To be clear, below that level we want nothing to do with it.
Click on chart to enlarge view.
When a stock is this stretched to the downside and begins to show signs of bottoming, the reward/risk is so skewed in our favor that it’s worth accepting a lower-probability trade setup. Most of them don’t work, but the ones that do more than pay for the losers.
In this case, Reliance Infrastructure is a long if above 18, with targets near 40, 67, and 97 depending on your timeframe.
This is the type of situation where we put ourselves in a position to get lucky. Take the entry while it has minimal risk and see how it develops. Worst case we get stopped out and take a small loss. Best case, this turns into a 10 bagger. Most likely, it’ll end up somewhere in the middle.
Guess we’ll find out soon.
Thanks for reading and let us know if you have any questions!