May 2021

Short Squeeze ChartList

The Short Squeeze ChartList (SSCL) can be found on our website and it was just updated this morning. Under "Members", click on "ChartLists". Then simply scroll down until you see this ChartList. Click on the link provided and type in the password that's provided next to the ChartList link. You can then view the ChartList, or download it into your StockCharts.com account, provided that you are either an Extra or Pro member at StockCharts.com.

Hot Stocks

It's been awhile since our last Short Report. The primary reason is that there really haven't been a lot of exciting breakouts and bullish momentum among stocks on the list. There still aren't, but because it's been a few months, I thought I'd update the report. In our last report on January 31st, we featured 11 stocks that were showing bullish momentum and characteristics that could lead to short squeezes. If you recall, we ignored stocks that made HUGE advances in January as we felt the risk was too high based on the massive gains that many heavily-shorted stocks had made. In hindsight, that turned out to be a very wise move. Here's an update of the 11 stocks that we last featured and how they performed, including their subsequent price highs and their current prices:

While many of these stocks performed well in the weeks after our latest Short Report was issued, current prices show a very mixed story. I would consider Short Squeeze stocks to be a very short-term in nature. For the most part, we're trying to benefit from short-term market inefficiencies. A high short percentage of float suggests that breakouts could be extreme because of the higher demand from short covering. As we saw in January, that "panicked" buying can be achieved in just a few short days. Therefore, on breakouts, don't worry about trying to grab every cent possible. If you can make money from this strategy, just take it and be happy.

To determine May "hot stocks" on the SSCL, I ran a scan against the entire ChartList, looking for stocks with daily PPOs greater than 1 and with SCTR scores > 70. This combination reflects bullish momentum and solid relative strength. Only 4 of the 42 stocks on our updated SSCL met this criteria. They are as follows:

CVM is featured below. The other three have seen various levels of pullbacks, but VXRT is at key gap support where it's recent strength began:

I would be concerned if VXRT cannot hold 6 on a closing basis.

Theme

It's definitely biotechs ($DJUSBT). There are 11 biotech stocks on our Short Squeeze ChartList, which means they represent more than 25% of this list. Should biotechs begin to outperform, the odds of these stocks posting big returns would obviously increase. So let's look at the DJUSBT and see what needs to happen here:

I see a bullish pattern (ascending triangle), but the group has been a terrible relative performer. We are closing in on key long-term relative support, however. So if that relative support holds, and biotechs and forge to new highs after an ascending triangle printed, the odds of further market rotation into biotechs would increase significantly, in turn providing the possibility of short squeezes in our SSCL biotech stocks.

Recent Winners

In learning to spot potential short squeezes, it's always helpful to review the signs of stocks that have worked in the past. We saw MASSIVE volume spikes to accompany explosive moves higher back in January. Looking at charts like GME, BLNK, and AMC back in January will give you a sense of what can happen when panicked buying meets heavy short interest. More recently, we've seen fewer of those explosive moves to the upside and the hysteria from a few months ago has really settled down. There still have been solid performers from our Short Squeeze ChartList (SSCL), however:

ASO:

The short percentage of float has fallen significantly on ASO - from 47.38% to 30.62% over the past few weeks. That reduction is the result of short covering that pushed ASO to breakout levels. Volume has been very strong, as you can see from the above chart. ASO is a stock that I had previously featured on a Daily Market Report (DMR), citing the heavy short interest. It remains a solid relative performer among specialty retailers ($DJUSRS). So long as that continues, ASO will likely terrorize those shorting it.

CVM:

There was a huge volume surge in April when CVM spiked to test its early February closing high. It was unable to clear it and we've seen recent selling back to gap support near 20. Should biotechs begin to bounce, CVM would be an interesting candidate, although the true "short squeeze" would not likely materialize unless the stock is able to clear 28 on a closing basis. I'm generally not a "buy on a pullback" kinda trader when it comes to short squeeze candidates, but I do find CVM interesting, so I bought a SMALL number of shares. PLEASE keep in mind that small biotech companies can be devastated by any poor drug-related news. I've seen stocks drop 80% before overnight, so taking any position on a biotech stock involves considerable risk. That's why I typically take very small positions in stocks like this.

Watch This Recent Breakouts/Setups

It looks to me like GOGO could be a nice candidate for a short squeeze:

GOGO (28.50% of float short):

There are some very positive developments taking place here. The blue circles show all the recent technical strength occurring. On Monday, GOGO closed barely above recent price resistance. Today, we're attempting to add to it. The intraday high today and yesterday was exactly 11.77. The closing breakout level was 11.28 until we saw GOGO close at 11.36 yesterday. Another close higher today would be bullish, especially if we see volume pick up into the close. Failure to sustain the recent strength, however, with a close back beneath 11.28 would be short-term bearish.

Enjoy your week and hopefully we'll begin to see more bullish action taking place on our Short Squeeze ChartList stocks.

Happy trading!

Tom