10 Stocks to Buy as Short Sellers Swarm

And much like an army of ants will react to a group of kids pouring water on their den, short sellers will do the same once a stock reverses course and begins moving up. They literally scatter in each and every direction looking for cover. This causes explosive moves in a stock that would otherwise be impossible without the help of short sellers adding fuel to the upside by covering their positions.

For this reason, the list of stocks that aggressive traders or investors should get long must involve short sellers. It is your job to use their blind aggression to create substantial profits over short periods of time. You become the bully.

I outlined recently some concern I have for the possibility of downside in the markets over the next few weeks. With that in mind, it is never too early to begin looking for those stocks that have been the strongest during the most recent rally and have been attracting the watchful eye of short sellers, as exhibited by a greater than average short interest percentage.

All of the stocks listed below have been extraordinarily strong and are exhibiting a good deal of doubt with respect to their moves up. Short sellers will surely pile on as they fall, should the market decide to decline further. They should be on your list of prospective stocks to buy when and if the market does dip:

• Autonation (AN)
• Baidu (BIDU)
• Berry Petroleum (BRY)
• Changyou.com (CYOU)
• 51job Inc. (JOBS)
• Linkedin (LNKD)
• Liquidity Services (LQDT)
• Netflix (NFLX)
• Pricesmart (PSMT)
• Quality Systems (QSII)

Ten stocks, most of which are loved by the shorts and have caused them much pain over the past few months. Keep an eye on them, as they will make for fantastic short-term investment vehicles should they provide an opportunity to get in over the next few weeks or possibly months.

Ali Meshkati is founder of Zenpenny.com, a Web site focused on investing in restructurings and special situations in micro-cap and small-cap stocks. Prior to Zenpenny, he managed Trillian Capital Partners LP, a top-ranked macro hedge fund. He has been trading the financial markets since 1994, working as an adviser to both individual clients, as well as an institutional trader with Bank of America. He can be reached at [e-mail].

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