3 short squeeze candidates for July
With these stocks set to move higher, the shorts will get squeezed out of their positions, pushing prices even higher.
By Johnson Research
After a brief rest, short sellers appear to be returning to the market. Overall, short interest on S&P 500 ($INX) companies increased by 2.3% for the latest two week reporting period -- the highest increase since mid-March.
As much as we thought prices would slump through the summer, it appears that -- for now at least -- buyers remain in control of stocks. Investors are scrambling for a safe harbor from slumping fixed income investments, with the massive cash flow from the bond market helping to bolster stock prices. This new wave of cash flow is pressuring short sellers in a classic short squeeze.
Our typical scan for companies trading in technically strong trends with rising short interest yielded a number of qualified candidates. Some names like Tripadvisor (TRIP) have been on our list for a few months, and continue to beat the S&P 500 for performance. The table below holds some new names as well, though.
After months of lagging the market, material stocks like U.S. Steel (X) are getting a bid thanks to signs of a semi-prosperous economy, which could signal increase in demand for raw materials like steel.
Last week's robust auto sales figures, combined with rumors that U.S. Steel and other companies are in the process of filing a complaint that may halt the dumping of cheap foreign steel into the U.S. market, helped to break X's technical funk.
With short interest at its highest level in more than two years, the technical awakening is likely to squeeze the shorts out of their positions, propelling X higher.
Look for a move to $21 before summer's end.
History tells us that consumer discretionary stocks flourish and outperform in the early stages of an economic recovery as consumer confidence builds. Short sellers hit Petsmart (PETM) shares hard last month, increasing their positions by 14% … and why not? PETM shares have lagged the market over the short-term and appear stuck in a pattern of lower highs and lower lows.
The stock warrants our attention since nothing can get the shorts running faster than a shift in technical patterns, like a break of the lower highs pattern. PETM share just broke above their rising 50-day trendline, suggesting a potential improvement in the trend, suggesting that a break above $70 will trigger the short squeeze.
We like the stock's chances of regaining a leadership role as it heads to $72.
The last short squeeze candidate isn't on the list above due to the fact that it is not part of the S&P 500. That aside, CNO Financial (CNO) has been whipping the market on performance, returning more than 18% over the last three months.
Despite the performance, the shorts are increasing their bets, meaning that it is likely only a matter of time before they rush to cover their losing positions by buying the stock back.
Target a rush to $16 over the short-term.
As of this writing, Johnson Research Group did not hold a position in any of the aforementioned securities.
More from InvestorPlace
Copyright © 2014 Microsoft. All rights reserved.
Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.
VIDEO ON MSN MONEY
Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.
Contributors include professional investors and journalists affiliated with MSN Money.
Follow us on Twitter @topstocksmsn.