EB Monthly Short Report - September 2022
Short Squeeze ChartList
Our Short Squeeze ChartList (SSCL), consisting of the most heavily-shorted stocks, was updated on our website recently. 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 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'd be very hesitant to trade these stocks on the long side until we see more bullish technical developments in the stock market as a whole.
August Report Card
Last month, I provided 5 potential setups off our Short Squeeze ChartList (SSCL), so I thought I'd evaluate the actual August performance vs. the potential I discussed one month ago:
BLNK:
I pointed out BLNK's breakout when it was trading at 22.37 on August 2nd. I even suggested a possible quick trip to 30. BLNK did rally, but topped out at an intraday high on August 15th of 26.95. Still, that additional run of more than 20% in just two weeks served up a great trading opportunity.
Grade: A
WKHS:
WKHS was breakout out and trading at 3.76 when I mentioned it last month. It ran nearly a dollar higher to 4.73 on August 8th, just 6 days later. That was a potential gain of 27% in a very brief period of time, more than adequate to walk away with a tidy profit.
Grade: A
NKLA:
After mentioning NKLA at 7.05 on August 2nd, it reached an intraday high of 8.97 just 6 days later. This was another potential winner in the 25-30% range.
Grade: A
SKLZ:
I provided SKLZ as a set up, but did issue a bit of cautiousness as volume was not at "short squeeze" levels. I felt if SKLZ could close above 2.00 resistance, then we could really see a pop. Well, SKLZ did rally to 2.18, but its highest close was 1.98. SKLZ did run more than 25% from its 1.70 price at the time our report was issued. Volume did ultimately pick up, but 2.00 resistance proved too great for the stock.
Grade: A
SPCE:
Like the others, SPCE was making a breakout and volume looked like it was starting to expand. It was mentioned at 8.06. The very next day, SPCE hit 8.55, which was a nice one-day score of roughly 6%. However, the very next day, SPCE gapped significantly lower to 6.75, underscoring the volatility and risk that short squeeze traders MUST be willing to accept. The one-day gain was nice, but the lack of follow-through hurts the grade here.
Grade: C-
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.
I traded the Short Squeeze set ups from last month and did well with them - except for SPCE. I don't try to be a hero and I take profits relatively quickly. I didn't go back and review my trades, but I typically will take a 10% gain in a very short period of time. That definitely cut my profit potential, but once the stocks were sold, there was no more risk. The cash was in my account and no longer subject to market fluctuations. There's an old Wall Street saying, "You can't lose money taking a profit." Those are words to live by as a trader. Accept defeat and keep losses to a minimum and be sure to reward yourself by taking a profit.
Currently, the Short Squeeze ChartList (SSCL) is full of stocks that aren't performing very well. I don't own any of them right now, but am watching three in particular:
SWTX:
I see 31.00 as a big level here. If SWTX can move through that level, most recent shorts will be underwater and could be forced to cover. The volume increased yesterday well above its 50-day SMA, so keep an eye on volume to confirm this potential breakout. A trip back to 40, like what happened in August, is certainly possible, but we need the breakout first.
IBRX:
IBRX is another one dependent on a breakout on increasing volume. There hasn't been much going on in this ChartList thus far in September as there's been no pressure for anyone to cover their shares. The overall market weakness has kept a lid on these heavily-shorted stocks. That could change if overall conditions begin to turn more bullish.
One important suggestion if you like to trade Short Squeeze stocks. I do not buy these on pullbacks like I do other stocks. The only reason I buy is if I think pressure is on shorts to cover their positions. That only happens if they're losing money. A pullback to test 52-week lows means NO ONE shorting is losing money. There is NO short squeeze. This is why heavy volume is important and why it's important for stocks to be trading at or near recent price highs. There needs to be emotional pressure on shorts to accept losses by covering - before price action gets away from them.
Happy trading!
Tom