EB Monthly Short Squeeze Report - February 2021
Short Squeeze ChartList
The Short Squeeze ChartList (SSCL) can be found on our website. 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 might be difficult to duplicate what we did in our first Short Report last month. We featured 10 stocks with solid momentum and excellent relative strength and here was their performance during the month:
Everyone's talking about Gamestop (GME) now. We've been talking it being the Mother of all Short Squeezes since it was featured in our September 2nd EB Digest. It has been on the top of every Short Squeeze ChartList that we've generated - an unbelievable number of shorts. Hopefully you now understand the significance of short interest and the impact it can have on performance. Don't EVER short companies that already have high levels of short interest. It's not worth the risk as many hedge funds and institutions can now attest. While GME is clearly an anomaly, the other 9 stocks that we provided last month also did exceptionally well collectively as a group.
What can we do for an encore?
Well, I'd be careful with GME. The longs ended January in charge for sure, but there are a lot of new investors that believe it's a slam dunk to make money in the stock market now. Historically, that type of thinking leads to big losses. You don't want to be the last one standing when the music stops.
For this month, I'm featuring stocks on our Short Squeeze ChartList that are beginning to accelerate and show strength, but I want to avoid some that had massive gains last month. I've received several emails asking how can you set a target on a stock in a short squeeze. My answer is that you cannot. There's honestly no way of telling where the rainbow ends during a period of enormous panic. Who thought the S&P 500 would lose 35% in 4 weeks in March? Panic does strange things to our psyche. Short squeezes may be even crazier because short sellers are faced with unlimited losses. You just want to make sure you're prudent about taking profits and don't worry about leaving money on the table. If you find yourself in a position of not knowing whether to sell or not, consider selling half. You'll be 50% genius no matter which way the stock goes after that.
To determine February "hot stocks" on the SSCL, I ran a scan against the entire ChartList, looking for stocks with daily PPOs between 3 and 7 and with SCTR scores > 80. This combination reflects strong momentum and excellent relative strength. There were 11 returned as follows, in order of highest to lowest SCTR score:
I would also add two others with PPOs in that 3 to 7 range, but that don't have SCTR scores - RXT and SDC. There's your baker's dozen - the 11 listed above from the scan plus RXT and SDC.
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. Here are three short squeeze explosions from January:
GME (138.08% of float short):
AMC (68.93% of float short):
FIZZ (62.52% of float short):
There are two unmistakeable common ingredients in all 3 of these short squeezes. First, there's a HUGE number of shorts on each of these as the short % of float is above 60% on all 3 and, of course, well over 100% on GME. Second, check out the volume that's accompanied the action recently. That's not just a "spike" in volume, that type of volume tells me there's PANIC in the air. Panic leads to short squeezes.
Watch These Recent Breakouts/Setups
Here are a couple short squeeze candidates that I have my eyes focused on right now:
SPCE (81.53% of float short):
WKHS (31.76% of float short):
Both SPCE and WKHS have seen volume increase and prices surge a bit, but not quite to the same degree that many of the MASSIVE short squeeze stocks did last week. I'd expect further strength in these two, but please remember that short squeeze candidates carry tremendous risk. Many posters on social media might suggest this is easy money, but we all know better. The most important thing to consider is keeping any position size relatively small. As was shown last week, you don't need big positions to see big returns. Always keep one eye on the amount of risk you're willing to take.
Well, that's it for The Short Report's second publication.
Happy trading!
Tom