The Bears Are About to Get Slaughtered in These Stocks

You know, I might get tired of saying this... if we didn't end up with outrageous profits every time I did.


When I'm looking for a bullish, long-side move that absolutely needs to be fast, aggressive, and right (FAR), I love to see high short interest.

"Short sellers are usually a bull's best friend" is high up there on my "10 Commandments of Trading"

Why? Because when shorting above a certain threshold, it usually provides the catalyst for strong rallies that keep burning higher.

Bad news for the bears: These rallies can absolutely demolish the shorts as they scramble to "cover" their suddenly losing positions.

But if you're long at just the right moment before the "short squeeze" kicks off, you're in position for some extreme upside.

That's what's happening today: A huge crowd of bearish traders has piled into a couple of stocks to try and ride them lower.

As you're about to see, they are about to have a rough ride. But we are set to make a killing...

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How Short Sellers Get Burned... and We Get Rich

To review, "short interest" is the sum of all shorted shares on a stock that have not been covered or closed out by buying back the stock.

In my Seismic Profits Alert service, I screen for stocks with high short interest that are on the verge of breaking above a resistance area. When the break comes, it typically unleashes a rush to the exits by the shorts looking to unload their losing positions.

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That's when the short squeeze hits on all cylinders and the stock is propelled higher by both the technicals and the enhanced buying pressure.

This morning, I found two such stocks. Both have a high short-interest ratio (the number of shorted shares divided by the number of tradable shares, or the float) and are looking to break above chart resistance.

Let's take a look at each.

Here Are This Week's Biggest "Short Squeeze" Candidates

First up is meat-and-food-product producer Hormel Foods Corp. (NYSE: HRL).

The company reported second-quarter earnings last week that slightly missed on profit and revenue. The stock initially fell on the news, but quickly rebounded off the support of its rising 50-day moving average.

The shares have traded sideways within a range between $34.50 and $36.50 for nearly two months. But with the 50-day providing solid support, a break above $36.50 appears likely, much like the stock did in early April, when it broke above a two-month range.

If we see that break higher, that's when the real price action should start, as HRL's short-interest ratio stands at a very robust 13.8 (I consider any stock with a ratio above seven to be a solid short-squeeze candidate).

The shorts will start unloading their positions, adding to the upward momentum.

Adding to the potential momentum is the fact that just two of the 11 covering analysts rate Hormel a "Buy." I can see the company picking up a few upgrades as the short squeeze progresses, which should add to the buying pressure.

I'm targeting a quick move to $38, HRL's 52-week high reached in December.

Short Selling

The second big opportunity is BioMarin Pharmaceutical Inc. (Nasdaq: BMRN), a biotechnology company focused on developing therapies for life-threatening rare diseases.

Unlike Hormel, BioMarin is on a roll. In fact, the stock is benefitting from a slew of brokerage upgrades after the company received U.S. Food & Drug Administration (FDA) approval last week for a rare metabolic disorder drug.

BMRN shares are up more than 19% off their April 6 low, rising along the flawless support of their 20-day moving average (red line in chart below). This rapidly rising trendline has not allowed a daily close below it since April 11.

What's more, the 20-day has crossed above both the 50-day (blue line) and 200-day (green line) moving averages, a clear sign of technical strength.

Despite the bullish momentum, short interest on BMRN shares remains strangely high. In fact, more than 12 million shares are sold short, yielding a short-interest ratio of 9.1.

I'm not sure what chart the shorts are looking at, but I don't care. All I know is that a lot of short positions will need to be covered... and soon. And that tells me this rally has legs.

The next technical obstacle is in the $93 to $94 region, which defined a top for the stock in from mid-December through early February. But that shouldn't be a problem given the technical tailwinds in play during the current rally.

Yes, we missed the brokerage upgrade bump... but not the impending short-covering surge, which could be even better.

I expect BioMaring to continue higher to the October high, around $96, in the short run before making an assault on the 52-week high at the "century mark," or $100.

Short Selling

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About the Author

Chris Johnson (“CJ”), a seasoned equity and options analyst with nearly 30 years of experience, is celebrated for his quantitative expertise in quantifying investors’ sentiment to navigate Wall Street with a deeply rooted technical and contrarian trading style.

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