Sellers are covering their losses on these 6 shorting candidates

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By James Dennin for Kapitall.

Energy is the only industry that didn't fall this week, as concerns mounted in the Middle East. Across the board, stocks fell for a third straight day going into Thursday morning, in part over valuations. 

But even though the Chicago Board Volatility Index (VIX) is nearing its highest level since mid-May, the VIX is still below 15. (Between 1990 and October 2008, the average value of VIX was 19.04.)

That might be why short sellers are covering their shares, as losses have been brief and many companies have recovered quickly. 

One way contrarian investors like to use shorting data is by looking at the rate sellers are covering their losses. Since short sellers are profiting off of equity they've borrowed, if the stock keeps going up, at some point they have to buy their shares back. 

If a lot of people do this at once, it creates what's called a  short squeeze , where a lot of sellers are trying to buy back their shares at the same time. This can cause the stock to go up even faster. 

We decided to screen for short covering. We started off with a universe of expensive-looking stocks, meaning their  price to equity (P/E)  was above 50. We then screened that list for short covering of at least 1% .

This means that at least 1% of the float has gone from being a short sale to a long one, an indication that the price could soon go up further. Do you think these shorting candidates will continue to rise in value? Use the list below to begin your analysis and let us know what you think in the comments. 

Click on the interactive chart to view data over time. 

1. BJ's Restaurants, Inc. ( BJRI , Earnings , Analysts , Financials ): Operates casual dining restaurants in the United States.  Market cap at $1.01B, most recent closing price at $35.58.  

P/E: 59.3

Shares shorted have decreased from 3.55M to 3.22M over the last month, a decrease which represents about 1.52% of the company's float of 21.66M shares. Days to cover ratio at 7.56 days.

2. Avis Budget Group, Inc. ( CAR , Earnings , Analysts , Financials ): Provides car and truck rentals, and ancillary services to businesses and consumers in the United States and internationally. Market cap at $6.15B, most recent closing price at $58.35.  

P/E: 108.06

Shares shorted have decreased from 20.16M to 17.99M over the last month, a decrease which represents about 2.49% of the company's float of 87.14M shares. Days to cover ratio at 9.7 days.

3. DuPont Fabros Technology, Inc. ( DFT , Earnings , Analysts , Financials ): Engages in the ownership, acquisition, development, operation, management, and lease of large-scale data center facilities in the United States. Market cap at $2.16B, most recent closing price at $26.48.  

P/E: 51.92

Shares shorted have decreased from 11.50M to 10.57M over the last month, a decrease which represents about 1.59% of the company's float of 58.33M shares. Days to cover ratio at 13.76 days.

4. Illumina Inc. ( ILMN , Earnings , Analysts , Financials ): Develops, manufactures, and markets integrated systems for the analysis of genetic variation and biological function. Market cap at $22.78B, most recent closing price at $177.40.  

P/E: 123.19

Shares shorted have decreased from 21.62M to 20.10M over the last month, a decrease which represents about 1.27% of the company's float of 119.55M shares. Days to cover ratio at 8.48 days.

5. Nexstar Broadcasting Group Inc. ( NXST , Earnings , Analysts , Financials ): Nexstar Broadcasting Group, Inc., a television broadcasting and digital media company, engages in the acquisition, development, and operation of television stations and interactive community Websites in medium-sized markets in the United States. Market cap at $1.4B, most recent closing price at $45.70.  

P/E: 326.43

Shares shorted have decreased from 5.08M to 4.74M over the last month, a decrease which represents about 1.96% of the company's float of 17.32M shares. Days to cover ratio at 7.57 days.

6. Elizabeth Arden, Inc. ( RDEN , Earnings , Analysts , Financials ): Engages in manufacture, distribution, marketing, and sale of fragrances, skin care, and cosmetic products to retailers and other outlets in the United States and internationally. Market cap at $850.6M, most recent closing price at $28.63.  

P/E: 178.94

Shares shorted have decreased from 1.62M to 1.33M over the last month, a decrease which represents about 1.13% of the company's float of 25.65M shares. Days to cover ratio at 2.86 days.

(List compiled by James Dennin. Monthly returns sourced from Zacks Investment Research, shorting data sourced from Yahoo! Finance. All other data sourced from Finviz.)

Kapitall Wire is a division of New Kapitall Holdings, LLC. Kapitall Generation, LLC is a wholly owned subsidiary of New Kapitall Holdings, LLC. Kapitall Wire offers free investing ideas, intended for educational information purposes only. It should not be construed as an offer to buy or sell securities, or any other product or service provided by New Kapitall Holdings, LLC, and its affiliate companies.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Stocks

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