2 Stocks Ripe for a Short Squeeze

Media stocks Charter Communications, Inc. (NASDAQ:CHTR) and Meredith Corporation (NYSE:MDP) could continue to assail new heights, should short sellers hit the bricks

Andrea Kramer
Feb 1, 2017 at 3:46 PM
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Short interest on S&P 500 Index (SPX) stocks is at its lowest point since early 2015. As Schaeffer's Senior VP of Research Todd Salamone noted earlier this week, "the current rally is based on a lot of short covering, with SPX component short interest plunging more than 9% since mid-December." Going back even further, these bearish bets have dropped more than 16% in the past year, while the S&P itself has rallied nearly 20%. Below, we'll take a look at two sectors where shorts continue to ramp up their bearish exposure -- and offer up a couple stocks that could be ripe for a short squeeze.

S&P 500 Index (SPX) short interest

Of the 36 sectors we track via our internal Sector Scorecard, only eight -- or roughly 22% -- have seen in annual increase in short interest, according to Schaeffer's Senior Quantitative Analyst Rocky White. Short interest on stocks under our Alternative Energy umbrella has risen 21% over the past year -- the most of any sector -- and the average time to cover these positions is 6.76 trading days. However, that's not necessarily surprising, considering just 11% of these stocks are above their 80-day moving averages -- the lowest of any group -- and the Guggenheim Solar ETF (TAN) has emerged as the worst-performing ETF that we track over the past year, dropping more than 30%.

Meanwhile, our 13 Media stocks have seen a 17.6% hike in these pessimistic positions over the last 12 months, and the average short-interest ratio for this group stands at more than three days to cover. This, despite the fact that 92% of stocks under our Media umbrella are above their 80-day moving average -- the second-highest of all the sectors we track.

Among the PowerShares Dynamic Media Portfolio ETF (PBS) components that have both outperformed the SPX in the past 60 sessions and have potential short-covering gas in the tank is cable company Charter Communications, Inc. (NASDAQ:CHTR). The stock touched an all-time high last week amid blue-chip M&A rumors, and is not too far off today, at $326.26. Currently 8 million shares -- or 5.6% of CHTR's available float -- are wrapped up in short interest. At the stock's average pace of trading, it would take about eight days for these bearish bets to unwind.

Meredith Corporation (NYSE:MDP) could also enjoy a short squeeze, should bears abandon ship. The media stock touched a nine-year high of $62.40 earlier today, bringing its year-over-year gain to more than 50%. Short interest on MDP rocketed 20.2% higher in the past two reporting periods, and now accounts for nearly 15% of the stock's total available float -- about two weeks' worth of pent-up buying demand, at the equity's average daily volume.

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