4 Stocks Squeezing the Short Sellers

03/25/2015 10:00 am EST

Focus: STOCKS

Thomas Aspray

, Professional Trader & Analyst

A stronger rally is likely to cause more pain for the short sellers who’ve been bucking the market’s overall trend in 2015, so MoneyShow’s Tom Aspray takes a technical look at four stocks with high short interest to identify levels at which those on the short side may to forced to cover.

The stock market sagged in late trading pushing the S&P 500 and Dow Industrials down about 0.60% for the day. The small-cap S&P 600 did manage a slight gain while the sharp rise in New Home Sales pushed the iShares US Home Construction ETF (ITB) up 1.16% for the day.

The short-term technical studies are declining so a further decline is possible over the short-term as the major averages could drop back to their 20-day EMAs.

The improvement last week in the technical studies, including the upside breakouts in the OBV for both the PowerShares QQQ Trust (QQQ) and iShares Russell 2000 (IWM), indicates a further correction will be well supported.

A stronger rally is likely to cause more pain for the short sellers who have been bucking the market’s overall trend in 2015. The most recent data shows that some traders have been forced to cover their positions. The short interest in Target (TGT) has declined 18% from February 13 to March 13, as the stock has risen 7.8% during the same period.

A look at the charts of four stocks with high short interest can help you identify levels at which those on the short side may to forced to cover.

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Chart Analysis: Gamestop Corp. (GME) made a low of $31.40 on January 12 and closed Tuesday at $40.91, which is a gain of over 30%.

  • At the end of December, there were 51.8 millions shares sold short.
  • As of March 13, which is the latest reporting period, there were 47.2 million shares sold short.
  • The short ratio is now 44.6, so at the average volume, it would take 44.6 days to cover the short position.
  • The chart shows that the quarterly projected pivot resistance at $41.22 has stalled the rally so far.
  • The upper boundary of the trading channel, line a, is now in the $44.50-$45 area.
  • The daily relative performance broke through resistance, line c, in early March.
  • The RS line continues to form higher highs, consistent with a market leader.
  • The uptrend in the OBV, line e, is more shallow, but it is still positive.
  • The 20-day EMA and initial support is now at $39.81.

Textura Corp. (TXTR) is a $683 million application software company that was up 0.75% Tuesday, even though the overall market declined.

  • At the end of November, 7.4 million shares had been sold short and this has changed little as the short interest is now 7.3 million shares.
  • It has a short ration of 38.7.
  • The stock has gained 12.9% during this period.
  • The chart shows next resistance in the $29 area.
  • The RS line is still in a downtrend, but it did move above its WMA last week.
  • The daily OBV looks very positive as the several month resistance, line h, was overcome in February.
  • The OBV is well above its strongly rising WMA.
  • The 20-day EMA is at $26.20 with the monthly projected pivot support at $25.24.

Next: Two More Stocks with High Short Interest to Watch

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Rouse Company (RSE) is a $1.15 billion dollar property management company that has a yield of 3.6%.

  • Since the end of February, the short interest has risen from 6.17 million shares to 6.38 million, an increase of 3%.
  • It has a short ration of 33.
  • The stock is up 15.4% so far in March, suggesting those on the short side are now feeling some pain.
  • The daily RS line broke its downtrend, line a, in late February and then moved above its WMA three days later.
  • The RS line and its WMA are both rising strongly.
  • The daily OBV has also broke through its resistance at line b, and is acting stronger than prices.
  • The strongly rising 20-day EMA is at $18.80, which should hold on a pullback.

HHGreg, Inc. (HGG) is a $176 million electronic retailer that bottomed in late January at $5.03 and is up 26.6% from the low.

  • At the end of January, the short interest was 3.9 million shares and it has now risen to 4.1 million shares.
  • The short ratio is now 39 as 37% of the stock’s float has been sold short.
  • The daily chart has next resistance at $6.80-$7.00, line c.
  • There is further resistance in the $7.60 area.
  • The relative performance has just broken its steep downtrend, line d.
  • The daily OBV has been rising since the January lows and has just broken through near term resistance.
  • There is initial support at $6.15 with further in the $5.80 area.

What it Means: As I have mentioned before, when you are looking at a stock to buy, it is also a good idea to look at the short interest as it can often provide fuel that will support your bullish outlook for the stock.

I have no current recommendation but Gamestop Corp. (GME) and Rouse Company (RSE) would look the most attractive on a pullback.

How to Profit: No new recommendation.

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