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I've been using short interest data to crush the markets for 20 years now, but every fresh bi-weekly print is still a thrill.
What can I say? The promise of a fresh payday- it's exciting.
I love this data because it's a truly "ambidextrous" indicator; it's good for picking stocks and lining up trades in rising and falling markets.
And in any kind of market, you can use it to determine where to "squeeze" profits from. Short interest shows us the percentage of the public float of shares currently being shorted.
It's simple: A higher level of short interest means more people (and by "people," I mean big hedge funds and institutions, really) are betting against the stock, aiming for it to fall.
But if it rallies higher, these players will be forced to buy back the stock and "cover" their short positions at higher and higher... and higher... and higher levels.
All you have to do is be there as they cover and bid up the stock, and you can make out like a bandit.
It's as easy as that. Today, I'm going to show you how it's done and share what I think is this month's richest target...
How to Confirm a Genuine Short-Squeeze Opportunity
Rather than hog all the fun for myself, I'll show everyone exactly how I go about making these picks. You don't have to be a quantitative analyst like me; the "legwork" is easy - shockingly easy. In fact, I'm surprised more people don't use this data.
- Find companies with high short interest ratios (SIR). These are your short squeeze candidates. (Note: What's a SIR? It's simply the current short interest for a stock divided by its average daily trading volume. A reading of six or better is what I like to see.)
- Identify candidates that are in a strong bullish trend. A strong 50-day moving average is a pretty good indicator that short sellers are starting to sweat.
- Determine a "trigger price" where short sellers are likely to throw in the towel. Typical candidates: new 52-week or all-time highs, round numbers like $20, $50, $100. A good rule of thumb is, the more zeros, the more potential for it to be a trigger.
REVOLUTION! Regular investors have been able to turn the tables and take Wall Street to the mat recently because of these situations. This is perhaps the market's hottest trade right now...
Once you've got all three covered, it's time to get into the stocks before the squeeze starts and the short sellers start pumping the stock higher as they fight to buy the shares back to close their losing positions.
Here's This Week's Best Short-Squeeze Target
Short interest data reveals that these 11 stocks are getting ready to breakout.
But, to make this really easy, and to absolutely maximize our chances of taking down gains, I've picked the best one...
And that's the Carlyle Group Inc. (NASDAQ: CG). Incidentally, I discussed the Carlyle Group during my Night Trader livestream a few weeks ago, ahead of their earnings.
The shares had just bounced from support at their 20-day moving average, and the same pattern is getting ready to happen now.
The Carlyle Group is best known as a private equity firm that has built a huge portfolio of companies across all sectors and business lines - we're talking government contracting, communications, agribusinesses, and financial services, just to name a few.
Last quarter's earnings beat analyst estimates while the company provided positive guidance. Shares rallied a fast 10%. Since then, the stock has pulled back to technical support at its 50-day moving average, and now shares are switching back into rally mode.
Recent short interest activity on the stock saw a slight increase, which took the short interest ratio to a reading of 6.7. That reading, combined with the bullish 50-day moving average, builds a bullish short squeeze case for CG shares as they begin to rally again.
The stock is trading at $36.54 as of midday March 12, 2021, and the shorts should start to unwind their positions by buying the stock as it moves above a trigger price of $38.25 - that's less than 5% higher from here. I'd put a short-term target of $43.00, which could land you nearly 18% in profits in short order.
There are all kinds of ways you can play a stock like Carlyle that could be about to explode higher. It would certainly be easy to buy the stock and ride it higher. But I think you'd be shocked at how easy it is to really boost profit potential with options trading - maximizing gains potential from thousands of different stocks. I'm talking about the chance to add thousands to your account in a matter of days or weeks. I know a guy who's releasing his next "Super Options" research recommendation this week - learn how you could get it.
About the Author
Chris Johnson is a highly regarded equity and options analyst who has spent much of his nearly 30-year market career designing and interpreting complex models to help investment firms transform millions of data points into impressive gains for clients.
At heart Chris is a quant - like the "rocket scientists" of investing - with a specialty in applying advanced mathematics like stochastic calculus, linear algebra, differential equations, and statistics to Wall Street's data-rich environment.
He began building his proprietary models in 1998, analyzing about 2,000 records per day. Today, that database, which Chris designed and coded from scratch, analyzes a staggering 700,000 records per day. It's the secret behind his track record.
Chris holds degrees in finance, statistics, and accounting. He worked as a licensed broker for 11 years before taking on the role of Director of Quantitative Analysis at a big-name equity and options research firm for eight years. He recently served as Director of Research of a Cleveland-based investment firm responsible for hundreds of millions in AUM. He is also the Founder/CIO of ETF Advisory Research Partners since 2007, noted for its groundbreaking work in Behavioral Valuation systems. Their research is widely read by leaders in the RIA business.
Chris is ranked in the top 99.3% of financial bloggers and top 98.6% of overall experts by TipRanks, the track record registry of financial analysts dating back to January 2009.
He is a frequent commentator on financial markets for CNBC, Fox, Bloomberg TV, and CBS Radio and has been featured in Barron's, USA Today, Newsweek, and The Wall Street Journal, and numerous books.
Today, Chris is the editor of Night Trader and Penny Hawk. He also contributes to Money Morning as the Quant Analysis Specialist.