Amid this uncertain market environment, it's not often you hear about stocks with the potential to muscle higher. Therefore, playing with one of the awesome filters on SchaeffersResearch.com, I decided to check out some uptrending stocks with heavy short interest – a bullish implication from a contrarian standpoint. Delving through the results, I came across an equity that caught my eye: Louisiana-based health-care provider LHC Group, Inc. (LHCG: sentiment, chart, options).
To see how I utilized the filter, check out a previous edition of Short Interest Report.
A prescription for new highs
Before we dive into the short-selling arena, let's begin by analyzing how the stock is performing on the charts.
Since successfully breaching resistance in the 30 area – a region that capped the stock's rally attempts in late 2006 and early 2007 – the shares of LHCG have embarked on a quest for new highs. Rallying atop double-barreled support from its 10-week and 20-week moving averages, the equity has outperformed the S&P 500 Index (SPX) by more than 40% during the past 60 trading sessions. At last check, the shares were hovering in the 34.40 region – less than 3 points from their all-time high.
A teaspoon of skepticism
Reverting back to what caught my eye to begin with ... Despite the security's status as an outperformer lately, short sellers have flocked toward LHCG. During just the past reporting period, these bearish bets powered more than 10% higher, and now account for 1.64 million LHCG shares – or 11% of the stock's total available float.
Nevertheless, these pessimistic positions could actually morph into a dose of technical fuel for the medical issue. Should the shares of LHCG continue muscling higher on the charts, the skeptics could get spooked into buying back their bearish bets. At the equity's average daily trading volume, it would take about 5 days for the backlog of short interest to unwind, which could translate to a short-squeeze rally.
Word on the Street
Meanwhile, nursing their own case of pessimism are analysts. Regardless of LHCG trending higher, 6 out of 11 ranking brokers issue lukewarm "hold" ratings, according to Zacks. In addition, the average 12-month price target on the security rests at $37.89, Thomson Financial reports, just a hair's breadth from the stock's current trading range.
Should LHCG continue its streak of new all-time highs, the bears could convert to the bullpen. A short-covering rally or a fresh wave of upgrades and/or price-target increases could be just what the doctor ordered.
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