30 Stocks Ripe for a Short Squeeze

Skepticism is levied toward JPMorgan Chase & Co. (NYSE:JPM) and Weight Watchers International, Inc. (NYSE:WTW), though both stocks have outperformed

Mar 13, 2017 at 12:47 PM
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Stocks have been on a record-setting run since the November election, and though the major benchmarks have pulled back recently, they are still trading within a chip-shot of uncharted waters. While short interest has started to edge higher on the S&P 500 Index (SPX) for the first time since mid-November, there have been a number of stocks that have seen notable increases in bearish betting amid their recent rallies. As such, Schaeffer's Senior Quantitative Analyst Rocky White broke down a list of 30 stocks whose short sellers may be staring at a big loss -- and could be on the cusp of covering. Included in the list are big bank JPMorgan Chase & Co. (NYSE:JPM) and Oprah favorite Weight Watchers International, Inc. (NYSE:WTW), with shares of each a possible candidate for a short-squeeze.

Taking a quick step back, White provided a brief rundown of how he gathered his data. While the numbers include quite a few assumptions, they should be taken as a rough estimate. "To estimate the return for the shorts, I went back over the past year of short interest data to find when the bearish bets were placed," noted White. "Then, I used the average price over the prior two weeks, and estimated the short positions that were added at that average price. I used a weighted average by increase in shares shorted to find the average price the shorts are entering, and then calculated the shorts' return." Additionally, here's a breakdown of what the columns mean in the chart below.

  • SI % of Float: Simply, the most recent short interest as a percentage of float.
  • SI % Change: This is the change in short interest off the low over the past year.
  • SI % Change (% of Float): This tells us what the short interest change is as a percentage of float. 
  • Days to Cover the New Shorts: This is the change in short interest divided by the 50-day average daily stock volume. The number of days it would take to cover the build in shorts. 
  • Short (Avg. Short Price): This is the weighted price estimate where shorts entered.
  • Shorts (% Return): Assuming the average short price, this is the return on that short interest. 
  • Average Build Date: This gives us an idea on when the shorts got in, since it might be good to know how long they've been holding. According to White, there are multiple ways to interpret this data."You could say the longer they hold the more likely they could get out on another move higher. Or you could assume the longer the hold date the less accurate the data." However, it should be noted that there is a lot of buying and selling occurring throughout the two-week period that we're not capturing, so the farther back the build date, the more likely those shorts turned over and they are out of the trade. In other words, they got out and new shorts entered at a much different price, but we didn't capture it because it happened between reports.

stocks ripe for a short squeeze

Skepticism Surrounds Outperforming JPMorgan Stock

Shares of JPM are up 54% year-over-year, and have added 30% since their Nov. 8 close. More recently, the stock hit a record high of $93.98 on March 1, and was last seen trading at $91.33 -- just north of its rising 20-day moving average. The bank stock will continue to be in focus along with its sector peers this week, with the Fed expected to raise interest rates on Wednesday.

Though short interest on JPM has declined since it peaked at a two-year high in mid-December, speculative players have once again turned to these bearish bets. In the two most recent reporting periods, short interest on JPM rose 3.7% to 35.2 million shares, or 2.5 times the stock's average pace of trading. What's more, analysts have plenty of room to upwardly revise their ratings on the outperforming stock. Currently, 12 of 21 brokerages still maintain a "hold" or "strong sell" rating toward JPMorgan Chase & Co. The shares could find a fresh burst of buying power, should short sellers and/or analysts capitulate to their upward trajectory.

Weight Watchers Shorts Just Starting to Crack

WTW soared to a new annual high of $19.86 on March 1, following the company's well-received earnings report. Since then, the stock has pulled back to trade at $16.78 -- near a 50% Fibonacci retracement of its post-earnings bull gap -- but remains 46.6% higher year-to-date.

This positive price action has likely caught short sellers off guard, though short interest declined only slightly in the most recent reporting period. In other words, there's still ample room buying power on the sidelines to help buoy WTW, considering 65.7% of Weight Watchers International, Inc.'s float is sold short. At the stock's average pace of trading, it would take almost two weeks to cover these shorted shares.

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