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BALTIMORE ( Stockpickr) -- I hope you're not a short seller.
If you are, you've probably gotten your hat handed to you in the last couple of months as the broad market ratcheted higher and investors' confidence in stocks strengthened. As I write, the
S&P 500 has climbed more than 10% year-to-date. For shorts, that's a pretty nasty trend to try to bet against.
The argument to short a company can be compelling: from the economic collapse that's barely out of short-term memory for most market participants to individual factors like overleveraged balance sheets or unprofitable business models, there's no doubt that betting to the downside can generate gains in market conditions when few other strategies can. But when the market is roaring, short sellers can find themselves in a world of hurt.
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And that exact scenario is creating a major short squeeze opportunity in a handful of momentum stock names this week.
An uptrend is like kryptonite to short sellers. Unlike long positions, where owners can hold onto losers for as long as they like, excessive uptrends can cause short sellers to get a margin call (effectively a forced stop-out unless they're willing to pony up more capital). That factor means that uptrending names can fuel even bigger short squeezes than their stagnant peers.
Let's back up for a second. In case you're not familiar with the term, a short squeeze is the buying frenzy that ensues when a heavily shorted stock starts to look attractive again to investors, causing share price to skyrocket. One of the best indicators of just how high a short-squeezed stock could go is the short interest ratio, which estimates the number of days it would take for short-sellers to cover their positions. The higher the short ratio, the higher the potential profits when the shorts get squeezed.
Naturally, these plays aren't without their blemishes -- there's a reason that these stocks are being heavily shorted. But for investors looking for exposure to a speculative play with a beefier risk/reward tradeoff, these could be powerful upside plays for the coming year.
Without further ado, here's a look at our list of
uptrending short-squeeze opportunities.