Three Short Squeeze Stocks Set to Explode Higher

The term “Short Squeeze” is one that’s become famous over the last three years as the Reddit Army and FOMO traders have played a game with names like GameStop (GME), Chewy (CHWY), and Blackberry (BB).

But the strategy of investing in stocks with high potential for a short squeeze is a decades old practice that yields great results.

You just need to know what to look for.

Before we jump into my recent list of Short Squeeze Candidates, let’s take a moment to go through “why” short squeezes works.

Everyone remembers the Gamestop stories.  That’s an extremely rare example of a short squeeze, but there are hundreds of these situations that play our every month on stocks that don’t get as much attention.

Shorting a stock can be a dangerous undertaking.  You’re betting that the stock will decline and using margin accounts to do it which means that you’re leveraged.

If the stock goes down, the shorts are happy, and they pocket their profits.

It’s a totally different story when a stock goes up though.  When this happens, the short sellers start feeling the pain as their leveraged losses start to add up quickly.

At some point, they must call it quits and cover their positions to limit losses.

When a whole bunch of bearish pros on a particular stock start to cover all at once – meaning they’re elbowing one another and stampeding through the narrowest of doorways and grabbing shares at every and any price – that stock can go parabolic.

That’s a “short squeeze.”

How do you find a short squeeze before it happens?

It feels like we read or watch stories about shorts squeezes after they’ve made millions for investors that appear to be “in the know.” That’s not the case.

You can find short squeeze candidates using a simple approach.

  1. Find stocks with “high” short interest, usually a short interest ratio of 6 or higher will do it.
  2. Filter those stocks to find only the stocks with high short interest that are in a bullish trend.
  3. Identify a “Trigger Price” at which short sellers are likely to run into the market to cover their losing positions.

Currently, the number of companies with a short interest ratio above 6 is 306.

That number was 265 a few weeks ago, indicating that the pros are getting more bearish on the overall market as the volatile summer months approach.

Applying my filter to only include stocks from that list of 306 that are currently in a bullish trend narrows the list to just 92 stocks.

Remember, short sellers only get squeezed out of their positions when the stock is going higher.  They make money and stay short when a stock price is in a bearish trend.

Here are a few characteristics of the list.

  • The short squeeze candidate with the largest market capitalization is Royal Bank of Canada (RY).
  • The group with the most short squeeze candidates is the Health Care industry with 26 stocks.
  • The energy sector is the group that has seen the largest decline in short squeeze candidates over the last two weeks.

Let’s look at the top ten list of short squeeze candidates.

Now, a closer look at three of the candidates with Trigger and target prices.

Arbor Realty Trust

Real Estate Investment Trusts have been slow to break out over the last year as investors have worried about a crash in the real estate market.

This is one of the reasons that short sellers have been adding to their position on Arbor Realty (ABR).

We’re starting to see more REITs move into bullish trends as investors see a potential end in sight for the high interest rate environment that makes real estate so risky.

This does not mean that the long-term prospects have turned totally bullish, but many of the REITs are seeing buyers come into the market.

This is the case with Arbor Trust.

The stock’s short interest ratio sits at 19.0, meaning that it would take 19 days of the stock’s average volume to cover the current short positions.  That’s high!

The stock’s 50-day moving average turned bullish in late April.  That was followed by a “Golden Cross” patter forming on the stock in June.

A Golden Cross formation indicates that a stock is gaining positive momentum and normally forecasts a 3-6 month bullish trend.  Not good news for the shorts.

A look at the chart identifies $15 as the “Trigger Price” for a short squeeze as it would mark new all-time highs for Arbor Trust.

From there, the stock is likely to target the $17.50 price over the next 4-6 week.

ABR Stock Price

 

Iron Mountain

Also faring from the REIT universe, Iron Mountain (IRM) shares sit ready for a short squeeze.

As one of the emerging leaders in the data center business, Iron Mountain is a fast-moving stock associated with growth in the AI industry.  You have to ask why the pros would be shorting the stock?

Iron Mountain’s current short interest ratio is 7.1, putting it in the range for a potential short squeeze.

The fundamentals for Iron Mountain have been on a bullish swing as the company’s earnings are now on track to grow by double digits over the foreseeable quarters.  Iron Mountain’s management has been slow to raise investors expectations too much as the company is investing in growth to keep up with AI demand.

Iron Mountain’s chart is ugly if you’re a short seller.

The stock is up 28% year-to-date – compare that to the Nasdaq 100’s YTD return of 19% - shares of Iron Mountain are 32% higher over the last full year.

All of Iron Mountain’s technical trendlines are in strong bullish trends with the stock heading towards the psychologically significant $100 price.

Expect the stock to trade in a range as it approaches $95, but that same price will serve as the “Trigger Price” for the shorts to start covering their positions.

After that, look for the stock to target $120.

IRM Stock Price

Clear Secure Inc.

Travel season officially kicked off last week.  You’re going to hear me talking about avoiding a number of travel-related companies, but Clear Secure (YOU) is not one of them.

You probably know Clear if you’ve been to an airport more than a few times in the last year.  The company is one of the “fast tracks” to help you get through the long lines at the TSA checkpoints.

Clear Secure is in an enviable position among the travel companies.

While the airlines and hotels and other travel-related companies must deal with expenses that rise as they get busy through the travel season, Clear’s expenses should remain relatively level, improving margins for the next few quarters.

The stock’s short interest ratio is a lofty 11.1.  This indicates that it will take eleven days to cover the current short positions at the stock’s current average volume.  A high short interest ratio like that suggests that a short covering rally would be fast and aggressive.

Clear’s chart is what the shorts are watching closely right now.

The stock’s 50-day moving average just turned bullish last week.  This trend shift displays the improving price trend after the stock is emerging from a bearish trend that took shares to $17.

The last time that Clear Secure's stock price saw a bullish shift like this was in November 2023.  That bullish pitch drove shares higher by 20%.

The Trigger Price for Clear Secure sits between $19.50 and $20.  A break above $20 will clear a path to $22.50 for the stock as a target price.
YOU Price Chart