This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Stay Away From These Four Heavily Shorted Stocks

4. Facebook (FB - Get Report)

After a disappointing debut, shares of this huge initial public offering staged a decent short-term rebound, as I anticipated would happen in mid-June .





Nearly a month ago, I suggested shares would get a lift from a fresh wave of research reports from the company's underwriters in late June. But I also cautioned that actual second-quarter results, set for release later this month, might be fairly tepid. "This suggests booking profits if shares rebound in coming weeks," I wrote back then.

Some short sellers think that's much too passive a strategy and they see a compelling short play emerging. In just the two weeks ended June 29, the short position in Facebook rose a hefty 33% to 60 million shares.

Such a large short position implies that the stock will make a big move when second-quarter results are released, as results will have been as weak as the short-sellers anticipate, or good enough to make the shorts cover and trigger a short squeeze. If you have a strong feeling either way, then puts and calls may be the best way to capture any near-term move.

Risks to Consider: As an upside risk, any heavily shorted stock can post a massive quick gain -- if the short sellers are wrong in their assumptions and are forced to cover their positions.

Action to Take: The market feels winded, having dropped on most trading sessions this month. That may have led to some profit-taking by short-sellers, though the real action will come when second-quarter results are released for each of these stocks. There are times to go against short sellers (for example, a rising market could trigger squeezes). But this is not one of those times. It may be wiser to steer clear of any heavily shorted stocks right now.



David Sterman does not personally hold positions in any securities mentioned in this article. 

StreetAuthority LLC owns shares of CHK in one or more if its "real money" portfolios. 

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

This contributor reads:
Barry Ritholtz
Paul Kedrosky
Brad Delong
Joshua Brown
On Twitter, this contributor follows:
TheStalwart
Carney

3 of 3

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Submit an article to us!
SYM TRADE IT LAST %CHG
ACI $1.00 6.39%
CHK $16.39 -0.91%
FB $78.81 -0.23%
RAD $8.13 2.01%
AAPL $128.70 -0.19%

Markets

DOW 18,070.40 +46.34 0.26%
S&P 500 2,114.49 +6.20 0.29%
NASDAQ 5,016.9290 +11.5380 0.23%

Partners Compare Online Brokers

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs