EB Monthly Short Report - November 2022
Short Squeeze ChartList
Our Short Squeeze ChartList (SSCL), consisting of the most heavily-shorted stocks, was updated 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.
Generally, 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 vs. peers is improving, (4) volume is WAY above its normal 50-day SMA, and (5) a final wish would be to have a strong industry group support the stock. There hasn't been a whole lot of this in 2022, because investors have been in a risk-off mode. August was promising as the rally off the mid-June low accelerated. That's a much better environment for stocks to potentially begin to "squeeze" those shorting. However, September happened. The Fed-related selling killed uptrends that had begun over the previous several weeks and most of the stocks on our Short Squeeze ChartList no longer qualify based on the criteria identified above.
I'm seeing a lot of positive market rotation, especially on an intraday basis. That leads me to believe that we could soon see the stock market in "risk on" mode, which no doubt would benefit stocks on our SSCL. Trading stocks on this ChartList ANY TIME requires significant risk taking. But to do it now, anticipating a rally, can be particularly dangerous. Please understand the risks you're taking before entering any potential short squeeze trading candidates.
I didn't publish a Short Report for October as I didn't see significant opportunities. If you recall, the S&P 500 ended September at 3585.62, a closing low in 2022 at that time. I do believe, after a few months of trending lower and bullish market rotation, that we could see a much more bullish stock market into year end. For that reason, I'd be interested in considering a few candidates - though I ALWAYS keep my positions in these stocks small in order to avoid HUGE losses. Many of these companies are being shorted for good reason. I do not view ANY of these stocks as long-term core positions. I'm simply trying to use the demand vs. supply advantage to score quick profits.
September Report Card
Two months, I provided 2 potential setups off our Short Squeeze ChartList (SSCL), so I thought I'd evaluate the actual September performance vs. the potential I discussed at that time:
SWTX:
I highlighted key price resistance near 31.00 on SWTX and indicated that we needed to see a move above 31.00 on increasing volume to potentially see a short squeeze develop. Here's what happened:
Result: SWTX did make a confirming-volume breakout shortly after publishing the September Short Report, but it was short-lived and would have resulted in a losing trade as the breakout didn't stick. Obviously, this is a risk of trading short squeeze stocks. You can see that holding these types of failed breakouts can be painful. SWTX is now down 20% from where a potential buy would have occurred in September.
Grade: C-
IBRX:
Now THIS is the type of short squeeze potential that we try to tap into. I highlighted the 4.75-5.00 price resistance zone as the level to watch. And when this one broke above it, it exploded!
Check out that massive surge in volume that accompanied this breakout. THAT is what panicked short covering looks like. After breaking above 5.00 on September 12th, IBRX reached an intraday high of 7.80 on September 15th, just 3 days later. That's a potential 56% return in 3 days! I didn't trade IBRX, but I can assure you I would've sold long before it hit 7.80. I would have either had a profit level set, say at 10% or 20%, and I'd have been gone. Sometimes, when a stock catches fire, I'll put in a trailing stop. So, if IBRX reached 5.50, I might set a .50 trailing stop to guarantee that I don't lose money and still provide the stock ample opportunity to trade much higher.
Grade: A+
A Look At September
Let me be clear AGAIN. I am NOT a fan of holding short squeeze stocks long-term. I wait until I believe they have a chance to EXPLODE, and then I take SMALL positions. Some of you may want to swing for the fences and that's fine. It's your money and deciding how much risk you're willing to take is your decision 100%. Just keep in mind that these stocks are generally shorted for very good reason and many times drift lower and lower over time. Developing and maintaining the Short Squeeze ChartList (SSCL) is just one part of our research and our goal is to simply provide you the knowledge to make better investing/trading decisions.
As I mentioned in Monday's Daily Market Report (DMR), I took a small position in a handful of SSCL stocks. I normally don't anticipate moves in these stocks, but I have turned very bullish AND my positions are small. I'm willing to risk small losses for a potentially big move to the upside.
Currently, the Short Squeeze ChartList (SSCL) is full of stocks that aren't performing very well. As I moved through the list of SSCL stocks, here are two that caught my attention, in addition to the 5 I mentioned in yesterday's DMR (NKLA, BLNK, WKHS, W, BYND):
UPST:
UPST is one of the most-heavily shorted stocks right now and its pace of decline appears to have slowed. Note that its PPO is just a bit below the centerline, so it wouldn't take much strength for it to cross into positive territory, one key development that I look for in a short squeeze stock. I also like the fact that consumer finance ($DJUSSF) has been strengthening on an absolute and relative basis. Money could find its way into UPST and with a short percentage of float reaching 38%, this one could definitely launch. Watch for an increase in volume and a breakout above 26.00.
MSTR:
This one follows the path of bitcoin ($BTCUSD). I actually like the bitcoin chart right now and believe that a risk-on environment would ignite this crypto. If bitcoin rises into year end, look for MSTR shorts to run for cover. MSTR is already showing some strength on its chart, trading above its 20-day EMA, which has crossed above its 50-day SMA. Also, note that the PPO is nicely above its centerline, highlighting bullish momentum. On the last quick pop higher in price a week ago, volume increased above its average line, but wasn't enough to trigger a squeeze. The next pop and volume increase could be a different story.
Happy trading!
Tom