Editor’s Note: The latest episode of my Profit Strategies Podcast is out now. Check it out right here to learn the best ways to profit off next week’s market movement.
Twice a month, my database downloads short interest data fresh from each of the stock exchanges.
With more than 17,000 data points hitting the hard drives in less than one minute, this quick scan is able to show me a list of stocks getting ready to pop higher.
Take a look at my last scan, from two weeks ago:
Unless you’ve been living under a rock, you’ll recognize the final name on that list: GameStop Corp. (NYSE:GME)
I made this chart before the stock was hitting headlines everywhere. Before your own mother was asking you, “What’s up with GameStop?” Before people who’ve never traded before downloaded the Robinhood app and started buying shares. Before GameStop’s CEO was worth nearly $1 billion.
Before the stock skyrocketed 770% in a matter of days.
That’s right – my model called GME’s short squeeze two weeks ago.
Today, I ran the same scan. And I came up with a list of 13 stocks ready to jump – two of which could become the next GameStop.
This time, you can get in before the feeding frenzy…
And take home enough cash to double the market’s performance.
Two Stocks Ready to Become the Next GameStop
For the last 20 years, short interest has been one of my favorite indicators, period.
It allows me to pinpoint big moves in stocks, and it’s been so key in my own trading success that I’ve dedicated a whole trading commandment to it:
Commandment #6: Short-Sellers Are Usually A Bull’s Best Friend.
Short sellers bet against stocks. They want stocks to go down so that they can make money. They always have a reason. Typically, their research has uncovered something about a company’s fundamentals that indicate a stock is doomed for lower prices.
Like GME, for example. The company was virtually obsolete – who goes to a store to buy video games when you can just download them yourself? Especially during a pandemic? GME was ready to become the next Blockbuster, as far as anyone was concerned.
In most cases, short sellers are simply betting that a company’s stock price will go to $0.00.
Now, when option traders like me “short” a stock, it means that they’ve bought a put option on a stock. Put options increase in value when a stock goes down. Short sellers operate differently though.
A short seller borrows shares of a company from their broker and then immediately sells them in the open market. They put that money in their account for the time being, but they still “owe” the shares they sold to their broker.
That’s where the “Short Squeeze” begins.
Success for the short seller depends on one thing: They must buy back the same stock that they owe their broker. In order to make money, they need to buy it back at a lower price. So, if the stock goes higher, they lose money – sometimes quickly.
When I ran my short squeeze model two weeks ago, it gave me 182 companies that were in position for a short squeeze to drive their prices higher. GME was among the better contenders, including Opko Health Inc. (Nasdaq:OPK), Ollie’s Bargain Outlet Holdings Inc. (Nasdaq:OLLI), and, believe it or not, Kroger Co. (NYSE:KR).
From my data model’s perspective, these stocks became short interest squeeze candidates when three criteria were met:
- The stock has a short interest ratio of 6.0 or higher.
- The stock is trading above its 50-day moving average.
- The stock’s 50-day moving average is climbing higher itself (a bullish trend).
Matching all three of these conditions tells me that the shorts are betting against a stock that is getting ready to put some pressure on their brokerage accounts, and that’s almost always great for me and my subscribers.
Last week, the shorts really got their fingers caught in the cookie jar when WallStreetBets, a small group on the popular Reddit social media site, made up of investors looking to share tips that will help the average investor beat Wall Street, took aim on the short sellers.
Short sellers were hammering GME, betting on the stock’s demise. And the members of the subreddit wanted to hurt the short sellers by driving the price of GME shares higher – so, they bought shares of GME. And their call to arms took immediate effect, causing a short-covering rally like I’ve never seen before. One that has resulted in a 700% move higher since the beginning of the year.
The stock turned into a feeding frenzy that you rarely see – and I mean rarely – in the short squeeze world.
But listen to this…
I performed studies on short squeezes way back in 2004 (I told you this is one of my favorite indicators) that showed short squeeze candidates outperform the market by more than 2:1, with a success rate of nearly 90%.
Those kinds of numbers are stunning. It means that 90% of the time, short squeezes double the market’s performance.
Let’s get real. GME’s trade is over. For a number of reasons. I’m telling you, don’t touch it. It’s radioactive as a new position at this point. A look at the put options on GME on Thursday showed me that you were paying 85% premiums to buy a put that was 50% out of the money. In the options world, that’s bad.
It’s better to just move on to the next opportunity – and believe me, it’s closer than you think…
Here is my latest list of short squeeze candidates. The numbers were refreshed last night, the trends checked, and these are the stocks I’m focusing on to make some sharp moves higher over the next few weeks as the shorts feel the pressure from these stocks’ rising prices.
Now, don’t expect 900% gains from these. GME was something of an anomaly. In reality, doubling the rest of the market is an incredible feat in and of itself.
And if you’re looking for fast cash, then listen up, because I have seen short squeezes like these accelerate 10-20% in short time.
With 13 stocks on the list, it can be hard to know which one will hand you the most cash. That’s why I’m breaking down my top two …
- II-VI Inc. (Nasdaq:IIVI)
More than six months ago, this was one of the stocks that I talked about during my weekly Fast Profits segment. The small semiconductor company operates out of Pittsburgh and focuses on some pretty in-depth technology, mainly of semiconductors and lasers.
IIVI has growth planned down the line. We’ve seen some good earnings reports from the company over the last six months as well as the acquisition of another company.
But the fundamentals aren’t the only impressive part of this stock. It’s technically strong as well, continuing the defy gravity and the bearish short-sellers betting against it. Short interest on the stock peaked two weeks ago, which means the shorts are starting to cover.
Another push higher above $95 will get the shorts coming into the market to cover their stock with a target price of $110 in some fast action.
- Ollie’s Bargain Outlet Holdings Inc. (Nasdaq:OLLI)
After receiving short-squeeze signals like this from OLLI, I recommended trading it twice in my Night Trader service- giving readers the shot at triple-digit gains each time.
The stock is looking to replicate that movement now.
Short interest on OLLI hit its highest levels in the last two years just two weeks ago, and the shorts are starting to cover now as the stock pushes back above $100.
We saw a sharp move in OLLI’s price earlier this week as the stock got caught up to the GME fiasco, but the volume wasn’t enough to knock the shorts completely out of their positions.
But there’s still fuel in the tank for a short squeeze to drive OLLI shares back to $125.
I’m expecting the stock to consolidate at $100 for a week or so, then continue its trek higher to $125 over the next month.
I may have predicted GameStop’s short squeeze. But my colleague, Shah Gilani, is known as “the man who calls it all
The death of retail, the rise in e-commerce, election swings, European market upheaval – Shah predicted every single one.
I’m not one to go get my palm read, but if I was trusting anyone to tell me my future, it’d be Shah. The guy is as close to a psychic as I’ve ever seen.
And he just made his boldest prediction yet.
Today, he’s going to show you exactly how to profit from what could be a massive $353 billion event within the next 18 months.
All the details are right here. But hurry, because Shah can’t tell everyone about this event, or it would lose its moneymaking power. He’s closing the doors on this opportunity on Sunday at midnight – this could be your last chance to cash in on Shah’s latest prediction.
Click here now to learn how.
Have a great weekend,