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Short Interest Update: UnitedHealth Group Inc., Yelp Inc, and Krispy Kreme Doughnuts

Taking a closer look at short interest changes for UNH, YELP, and KKD

by 7/25/2013 12:30:17 PM
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Over the course of the past two weeks, a number of stocks have experienced significant spikes in short interest. However, when these securities also happen to be technical standouts, this increased level of skepticism can end up adding more fuel to their respective tanks. Highlighted below are three outperforming equities that could end up receiving a contrarian boost in the near term.

UnitedHealth Group Inc. (NYSE:UNH) has put forth a solid performance on the technical front, advancing more than 33% so far this year to perch at $72.25. Additionally, the security gapped higher on July 18 -- courtesy of a stronger-than-expected quarterly earnings report -- and tagged a new record high of $73.15 just yesterday.

However, short interest on the healthcare concern surged by 36.7% during the most recent reporting period, and now more than 16 million shares are currently sold short. It would take nearly four sessions to cover these bearish bets, at UNH's average daily trading volume. Should the equity continue along its upward trajectory, it could end up benefiting from a wave of short-covering activity. Meanwhile, UnitedHealth Group Inc.'s 10-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) put/call volume ratio sits at 1.87, confirming puts bought to open have nearly doubled calls during the past two weeks. This ratio is just 2 percentage points shy of a 12-month peak, meaning traders have been snapping up puts over calls at a near annual-high pace. This accumulation of bearish bets -- particularly within the August series of options -- could end up translating into options-related support down the road.

Yelp Inc (NYSE:YELP) has had stellar 2013 so far, soaring about 117% year-to-date. The stock has also outpaced the broader S&P 500 Index (SPX) by north of 45 percentage points within a three-month time frame. On the charts, the equity cruised to a fresh all-time peak of $42.84 on July 22, just days after the firm announced plans to acquire SeatMe Inc, a web and iPad-app based reservation service.

Nevertheless, there are plenty of YELP naysayers on the Street. The online review forum saw a 27% rise in short interest during the past two weeks, and these pessimistic plays now account for a lofty 20.7% of the equity's available float. This is the equivalent of about four days' worth of pent-up buying pressure, at the stock's average pace of trading. Should these skeptics decide to hit the exits, it could trigger a short-covering rally for Yelp Inc. This negative attitude is also prevalent among the brokerage bunch. Despite the security's technical chops, only five analysts have handed out a "buy" or better endorsement, compared to 12 tepid "hold" suggestions. Even more telling, Thomson Reuters shows an average 12-month price target of $33.12 for the stock, reflecting a notable discount from its current price of $41.05. In other words, a round of upgrades and/or price-target hikes could be on the horizon, which could help propel the equity higher.

Technically speaking, Krispy Kreme Doughnuts (NYSE:KKD) has been knocking it out of the park, as the stock has more than doubled in value so far this year, and sports a year-over-year gain of roughly 220% to trade at $19.48. In fact, the equity has trumped the broader SPX by about 42 percentage points during the past 40 days, and notched a new multi-year peak of $20.60 on July 15.

Even so, pessimism abounds on the doughnut purveyor, as short interest jumped by 26.8% during the latest reporting period. At last check, these shorted shares represented a healthy 3.4% of the security's available float. Considering the equity's positive price action, some of these pessimists could end up abandoning their shorted positions, which could serve as a tailwind for KKD. Also of note, the stock's 10-day ISE/CBOE/PHLX put/call volume ratio of 0.67 ranks higher than 63% of similar annual readings, indicating traders have been scooping up puts relative to calls at an accelerated clip. Likewise, the security's Schaeffer's put/call open interest ratio (SOIR) of 0.85 registers in the 78th percentile of its annual range, conveying near-term speculators are more put-heavy toward KKD than usual right now. An unwinding of these skeptical bets could provide the equity with even more upward momentum.

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