EB Monthly Short Report - February 2022
Short Squeeze ChartList
Our Short Squeeze ChartList (SSCL), consisting of the most heavily-shorted stocks, was just updated over the weekend. You should be able to find it on our website today. Under "Stocks", 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.
I skipped the EB Monthly Short Report for January 2021 primarily for one reason. Sellers have been in control of these short squeeze stocks for the past few months. There have been few "worthy" breakouts and, without breakouts, you cannot have a short squeeze. I would not trade a stock on this ChartList unless (1) price momentum is bullish (PPO should be > 1), (2) we're setting a new high for at least the last month, but preferably the past 2-3 months, or longer, (3), relative strength is improving, and (4) volume is WAY above its normal 50-day SMA. There just haven't been any of those and still aren't.
Hot Stocks
I try to narrow down the list of potential trades on the SSCL by looking only at stocks with solid relative strength (SCTR > 70) and some bullish momentum (PPO > 1). For December 2021, I ran a scan against the SSCL looking for daily PPOs > 1 and SCTR scores > 70 and it yielded just 2 stocks. Here they were at that time:
Neither of these stocks have seen any extended strength, providing no opportunity for a short squeeze. I reviewed every chart on our November 30 Short Squeeze ChartList and found 1 stock that had a temporary short squeeze in play - and your timing needed to be perfect to capture it:
By the time BBIG saw its PPO turn positive, the short squeeze was all but over. Keep in mind that short squeeze stocks will be EXTREMELY volatile - usually in both directions. You truly need a gambling mindset to effectively trade short squeeze stocks, because you must have a very high risk tolerance.
The primary ingredients for a short squeeze on BBIG was there, however. In addition to breaking above recent price highs (broke to a 6-week price high in mid-January), volume must soar. Clearly, volume soared. But you don't want to be the last person standing when the music stops. Check out the 12.50 high on BBIG back in September. Whoever bought at that high would have been holding a 60% loss one month later. I've had many questions like "how high can a short squeeze stock go?" There is no set rule. I'd simply say that the higher the short percentage of float, the more POTENTIAL for exploding price. I also would not want to buy a short squeeze candidate and then not look for a few days. I believe these are meant to be very-actively traded. If I buy, I almost always will set limit orders to sell, stair-stepping my exit on any strength. Then just be prepared for EXTREME action, maybe higher or maybe lower.
I would avoid buying Short Squeeze stocks based on normal technical evidence and behavior. Oversold can remain oversold for a very long time. Positive divergences are routinely ignored. Pullbacks to test moving averages may not represent solid reward-to-risk entry points. For me, it's a "buy high and sell higher" strategy. Any profit is a great profit. These are very fast movers, so it's easy to buy or sell at the wrong time. Don't beat yourself up over it, just understand the volatility that accompanies these stocks.
I believe the best way to trade Short Squeeze stocks is to combine both current momentum (rising PPO) and relative strength (SCTR > 70, at a minimum). Of course, we want to watch the volume as well. In recent Short Squeeze ChartLists, I've added a 50-day SMA line to the volume so that you can visualize quickly whether volume is heavy or not each day.
So let's run that "SCTR > 70, PPO > 1" scan against our new Short Squeeze ChartList, which was just updated over the weekend. Want to know how many of the 33 stocks on this ChartList met this simple filter? Zero. This is one possible scan to run every day to look for renewed strength, but for now, I'd avoid trading short squeeze candidates.
Short Squeeze Trade Candidate
As I look at our current Short Squeeze ChartList, I wanted to feature a stock that could become a short squeeze candidate:
BBBY:
This rally attempt could fizzle as fast as it started. However, volume will be well above average volume today and if BBBY can close above 16, we know anyone shorting the past several weeks will be underwater. It's not the ideal short squeeze candidate, but it's probably as good as any on our SSCL right now.
I'll give you one other possible trade candidate on our list having a good day today and with volume already more than its 50-day SMA. Is it just getting started? It's possible, but just keep in mind that this is an EXTREMELY risky trade - not for everyone.
SKLZ:
Happy trading!
Tom