EB Monthly Short Report - July 2021
Short Squeeze ChartList
The Short Squeeze ChartList (SSCL) can be found on our website and it was just updated this weekend. 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
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). Last month, I ran a scan against the SSCL looking for daily PPOs > 1 and SCTR scores > 70 and it yielded 5 stocks. Here they were at that time:
If you've followed these stocks over the past month, then you now know how volatile and risky these stocks can be. We've seen HUGE winners, but also HUGE losers. Virgin Galactic (SPCE) was 31.23 a month ago. On June 28th, SPCE topped at 57.51, more than 80% higher. On the flip side, however, was Cel-Sci (CVM), which on Monday had gained roughly 25% for the month of June - until this happened:
These stocks provide excellent trading opportunities, but the risk is very high as well. There are reasons why stocks are heavily bet against. Sometimes those placing those big bets are right. Other times, they're not. One thing is certain. They typically result in wild rides in both directions, which means that keeping your emotions in check can be extremely difficult.
I believe this momentum plus relative strength scan is a great place to start, though. So I've run this scan against our updated SSCL. Here were the results this month:
SPCE has been on a roll obviously, but in order to keep the momentum going, it will need to break out above the February 11th closing high of 59.41. Meanwhile, gap support is 40.26 and the rising 20-day EMA is at 40.58, so there's your key support area.
SENS is interesting as it sold off last week to close just six pennies above its 20-day EMA at 3.45. It reversed off the 20-day EMA in June, so this would be a logical area to see another reversal. CRTX likely benefited from the surge in biotechs recently and could benefit from further gains in July. Biotechs love the month of July historically.
MSTR is beginning to trend higher again. I'd keep an eye on recent highs and lows to make sure this pattern continues. A close above 700 could result in many more buyers and a possible test of April price resistance just beneath 900. Shorts could really begin to panic on CVNA on a close above 320. Volume will be key for sure. A high volume breakout would encourage more shorts to cover to manage risk. Here's the chart and the significance of that breakout:
PRTS and FUBO are both trending above their respective 20-day EMAs, but still have a long ways to go to reach 52-week highs. FUBO's volume has been heavier so I like that one better among these last two.
Theme
Last month I highlighted the health care (XLV) theme and the fact that health care has a strong tendency to outperform in June. Over the past month, the XLV gained more than 6%, trailing only the technology sector (XLK), and easily outperforming the benchmark S&P 500. Biotechs ($DJUSBT) were strong last month, and that definitely aided many of our Short Squeeze stocks. That same historical strength carries over to biotechs in July as you can see below:
If you look at the bottom of that July bar, you'll see that the DJUSBT outperforms the benchmark S&P 500 by an average of 3.4% during July. That's a lot of outperformance. 10 of our 40 SSCL stocks are biotechs. It's worth keeping this in mind.
Short Squeeze Trade Candidate
As I look at the 40 charts and search for stocks to watch closely, two things are paramount. It's the combination of high short interest and some catalyst, fundamental or technical, to trigger high volume to accompany a price rise. Last month, I highlighted Blink Charging (BLNK) as a short squeeze stock to watch. It was 34.00 to close out May, but I pointed out that it needed to see its PPO rise above zero and it needed to break its downtrend. It did both to open June and later printed a high of 44.49 on June 28th before selling kicked in last week. This trade worked out well.
As I look at our updated SSCL, which stock on our current list has the potential to become a short squeeze candidate?
I'll take a shot with Kadmon Holdings (KDMN). Its short interest rose during June from 23.95% to 25.49%. It was 21.25% back at the end of March. As I look at the chart, I believe it's held up fairly well the past few months, despite rising short interest levels. That also means that there are a lot of shorts on board in its recent trading range. Should KDMN be able to break out above recent price resistance, there's a very good chance that shorts would need to cover, driving the price up much faster and on heavier volume. It's at least one that I'd keep on my radar. Here's the current chart:
That 4.20-4.25 resistance area will be critical. Biotechs love the month of July, but KDMN has not fared so well during July. Just please keep in mind that short squeeze trade candidates tend to carry very high risk. Consider either avoiding them altogether or keeping your position sizes very reasonable.
Happy trading!
Tom