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The stock market has been slowly rolling back down the hill after peaking in early March as investors wait for some sign that the Trump administration will be able to start moving forward with some of its key agenda items. Amid all this, short sellers have taken the opportunity to increase their bearish bets after months of sitting idle. That's good news for those of us who lie in wait for short squeeze opportunities.
A quick explanation: A short squeeze is a quick, often significant pop in the price of a stock that occurs when a large number of short sellers suddenly want to exit their positions. The only way they can exit is to "cover" their positions, which means they have to buy shares. This increases the buying pressure on the stock, forcing more shorts to cover, creating a virtuous cycle that can send stocks higher by double digits in just a matter of a few trading days!
Well, suddenly, the White House looks like it might be building momentum. President Donald Trump announced that he'd be releasing a "massive tax cut" as early as next week, financial reform appears to be back under the microscope, and the House appears ready to give healthcare reform another go, too.
We recently ran through the most updated short interest data and found a growing number of stocks that are setting up beautifully for short squeezes. How? These stocks are on the precipice of breaking into new bullish trading ranges despite the fact that bearish bets against them are growing.
Here are seven stocks to buy on their high likelihood of being squeezed higher over the next few weeks.
Short Squeeze Stocks to Buy: Seagate Technology (STX)
Everyone talks about the likes of Advanced Micro Devices, Inc. (NASDAQ: AMD ) and Apple Inc. (NASDAQ: AAPL ) in the tech sector this year, but somehow Seagate Technology PLC (NASDAQ: STX ) is overlooked despite a nearly 30% run so far in 2017.
Much of that action came after Seagate's last earnings report , which resulted in a 20% jump in just a few days.
Since then, however, the short sellers have gotten brave, piling into STX stock and hoping for its demise. But that's not happening. Seagate's fundamentals continue to suggest strong industry demand, while its technical picture is one of the best in its industry.
Seagate recently benefited from support from its 50-day moving average, which is once again trending higher. The stock also just worked through a consolidation that appears to have it ready to make another step higher.
Seagate is slated to report earnings Wednesday, April 26, before the bell. With roughly 10% of the stock's float tied up as short positions, even a small beat should enough to trigger a covering rally that could match last quarter's 20% run.
Short Squeeze Stocks to Buy: Verisign (VRSN)
It's hard to bet against the tech sector write large, which is outperforming the market and stands out as a relative-strength leader.
You wouldn't know it by looking at what the short sellers are doing, though.
The short interest ratio on Verisign, Inc. (NASDAQ: VRSN ) currently sits at 18.5. That's huge - it means it would take 18.5 days of trading at normal volume for all the shorts to cover their positions. Short interest on the stock only dropped 3% in the last report, meaning the bears aren't backing down.
VRSN is another quiet tech leader, boasting 16% returns year-to-date, but the shorts don't care.
However, Verisign earnings due out Thursday, April 27, after the bell could make the doubters take note. And as the report approaches, VRSN shares are creeping toward new all-time highs.
Short squeeze rallies require a "trigger," and in Verisign's case, a combination of new highs and earnings should do it. Watch for a move above $94 to shake some sense into the short sellers as they realize this stock is about to cost them a lot of money. I expect a powerful squeeze here - one that lasts much longer than normal.
Short Squeeze Stocks to Buy: Whole Foods (WFM)
Source: Mike Mozart via Flickr (Modified)
Whole Foods Market, Inc. (NASDAQ: WFM ) has been in the news for several reasons of late - pricing changes, positive sales shifts and even takeover rumors.
The shorts hate these kinds of headlines.
That's one of the reasons why WFM shares are on our short squeeze list. Naturally, we also like the short interest ratio of 9.3, and the fact that shorts control 12% of the outstanding shares available to trade. This means it'll be difficult for the shorts to cover without driving prices significantly higher.
Whole Foods doesn't report earnings until Wednesday, May 10, but until then, there are growing whispers and hints about a potential buyout - maybe by Kroger Co (NYSE: KR ) - in WFM's future.
Shares already are in the midst of a big move higher, and in fact, you could argue it's already in the midst of a squeeze. But we don't expect this to end soon. Right now, we're targeting prices above the $40 mark for WFM.
Short Squeeze Stocks to Buy: Nordstrom (JWN)
Source: Phillip Pessar via Flickr (Modified)
Everyone hates retail right now, so it shouldn't be a surprise to see the short sellers trying to hammer Nordstrom, Inc. (NYSE: JWN ).
There's just one small problem: This is one of the few names in the retail space that are actually improving .
From a technical standpoint, JWN is moving into a sustainable bullish trend as it prepares to break above its 200-day moving average. At the same time, the 50-day MA is signaling an intermediate-term bullish outlook.
Despite this, short sellers are betting against a comeback - so much so that JWN's short interest ratio is approaching 10. Short interest represents 23% of the stock's tradable shares, so a powerful blowback could be coming. Short sellers will have to fight one another just to find enough shares to buy back and cover their losses.
This is candy for the bulls. A short covering rally that sees JWN break above its 200-day moving average should target the $52 range.
Short Squeeze Stocks to Buy: Best Buy (BBY)
Source: Austin Kirk via Flickr
Nordstrom isn't the only retailer that's going against the grain. Consistently left-for-dead Best Buy Co Inc (NYSE: BBY ) is up nearly 20% year-to-date as the electronics and appliance retailer continues to improve its outlook.
And on the chart, BBY is trading above its 50-day moving average - a trendline that's ascending, nudging the stock higher and higher along the way.
The short sellers are ignoring the technicals, however; the short interest ratio sits just above 8. Like the other companies mentioned, short interest is high here too, at 13%. This will make it difficult for the shorts to cover without moving BBY higher - and fast!
Best Buy has just pushed the trigger - the $50 level, which has been chart resistance in the past. Plus, the market loves round numbers, so a sustained push above this mark will get investors interested in going long, which will pressure the shorts.
Look for a move toward $56 on the covering rally.
Short Squeeze Stocks to Buy: Deere (DE)
Source: Ford8n via Flickr (Modified)
Nothing runs like a Deere, right?
Well, the shorts don't think Deere & Company (NYSE: DE ) can run. The recent doubt around the Trump administration's ability to move forward with its aggressive agenda has it and other industrials trading in a range. As a result, the shorts are active; the current short interest ratio on Deere shares is 7.9.
In Deere's case, shares have been able to remain somewhat strong and retain some relative strength. DE is actually matching the S&P 500, and is better than many of its peers, so it's still a leader at the moment.
We're only $5 away from new highs, and there are some bullish developments on the chart that we like right now.
However, don't look for earnings to be the catalyst that drives DE shares higher - the report isn't until Friday, May 19. Instead, look for the first sign of success from Donald Trump & Co., be it healthcare or tax reform, to light the fire under this stock again.
I'm looking for a short covering rally to send Deere to at least $120.
Short Squeeze Stocks to Buy: Cerner (CERN)
Source: Americasroof via Wikimedia (Modified)
Lastly, healthcare companies have stalled out as the country waits to find out the fate of its current healthcare system. Still, a few sector companies could march higher, including Cerner Corporation (NASDAQ: CERN ) - an information technology play focused in the healthcare space.
Cerner shares are up an incredible 25% year-to-date and are locked in a strong technical trend. Shares did run into resistance around $60 as round-number resistance kicked in, and the shorts reacted by increasing their bets against the stock by 13% over the last two-week reporting period.
This latest bout of action from the short selling crowd has driven the short interest ratio on CERN shares to 7.5, while the shorts control 8% of the stock's float. That's more than enough to drive a short covering rally.
The trigger here is $60. A break above this mark will force the shorts to become buyers, triggering a rally toward $67.
As of this writing, Johnson Research Group did not hold a position in any of the aforementioned securities.
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