EB Monthly Short Report - December 2022
Short Squeeze ChartList
Our Short Squeeze ChartList (SSCL), consisting of the most heavily-shorted stocks, will be updated on our website later today or tomorrow. 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 expecting 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 one of the biggest mistakes with trading or accumulating shares of stocks on this ChartList is doing so while anticipating a rally. That can be particularly dangerous. I normally do not buy SSCL stocks on weakness or before breakouts occur. These technical developments, or lack thereof, do NOT trigger short squeezes. Shorts need to be losing money before they'll panic and cover. So I look for breakouts and a significant increase in volume. Please understand the risks you're taking before entering any potential short squeeze trading candidates.
November Report Card
I published a Short Report for November and pointed out a couple stocks to watch if breakouts occurred and volume increased. Here they were, with key levels to watch annotated:
UPST:
Discussion: 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 ($DJUSSF) has been strengthening on an absolute and relative basis. Money could find its way into UPST and with a short percentage of float reaching 38%, this one could definitely launch. Watch for an increase in volume and a breakout above 26.00.
Results: UPST never cleared the overhead price resistance and fell nearly 40% over the next week to ten days, which is a perfect example of why it makes sense to WAIT for a breakout rather than to ANTICIPATE one. Sometimes, no trade is the best trade.
Grade: A
MSTR:
Discussion: This one follows the path of bitcoin ($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.
Results: I discussed the improvement that was taking place in MSTR last month and the fact that I thought we might see bitcoin rally into year end. Of course, the FTX fiasco took care of the latter. But once again, WAITING for strength is generally the way to go with potential short squeeze stocks. MSTR never saw the required breakout with big volume and dropped 45% (!!!) from October 31st through November 21st.
Grade: A
A Look Ahead At December
I looked at every SSCL stock as of this morning. Most have improved technically as yesterday was definitely a "risk-on" kinda day, which helped these potentially-volatile stocks. Here are a few that might be worth watching for possible breakouts as volume is already on the increase:
W:
Yes, I see that volume from yesterday and the solid gain. But the biggest resistance level on the chart is at 43.56. On November 14th and 15th, W cleared this level barely on an intraday basis, but failed to close above it. A close above 43.56 with a short float here of 31.66% and we could see an explosion. Again, jumping in ahead of time, anticipating a breakout could prove profitable. However, just keep in mind that MANY, if not MOST, short squeeze stocks fail to make those breakouts and simply roll over and result in trading losses. I prefer to SEE the breakout, and try to catch the short squeeze "wave" to a quick 10% or 20% profit. I do like the improving relative strength of home improvement. That would only favor W if it could make that breakout.
IBRX:
I've featured IBRX before - just before the big explosion back in September. And IBRX is one of the few, if not only, SSCL stock with a very strong AD line. It also boasts a strong industry group - biotech ($DJUSBT). Volume accelerated yesterday above its 50-day SMA, another positive. But the short squeeze rally isn't likely to trigger until we push above 6.50 with gusto. I'd continue with patience here.
AMC:
This one has "potential short squeeze" written all over it. Volume is already 50 million shares today and it could be a bottoming head & shoulders breakout. This is the type of stock that could jump 50% in the matter of a couple days if shorts begin to panic. Today's close will be important. I like a breakout here, while a false breakout would be more concerning.
Happy trading!
Tom