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TheStreet Open House

5 Heavily Shorted Stocks That Hedge Funds Love

J.C. Penney

Soros is loading the boat on heavily shorted and troubled department store player J.C. Penney ( JCP). The bears have had control of this stock so far in 2013, with shares down sharply by 30%.

J.C. Penney has a market cap of $3 billion and an enterprise value of $5.96 billion. Its estimated growth rate for this year 1.1%, and for next year it's pegged at 62.4%. The current short interest as a percentage of the float for J.C. Penney is very high at 21.3%.

Soros loves shares of J.C. Penney right here, so much that he's added another 2 million shares to his already massive position, according to recent 13F filings. Soros started buying shares of J.C. Penney four months ago and his stake is now reported to be 19.88 million shares. That makes J.C. Penney the fourth largest position in his portfolio, according to Reuters.

>>3 Big Retail Stocks to Trade (or Not)

Another famous hedge fund manager is reportedly getting involved with J.C. Penney. Bloomberg reported that hedge fund manager Kyle Bass of Hayman Capital Management has entered a long position in the company by buying their debt. Yet another powerful hedge fund manager that is reported to have taken a stake in J.C. Penney is Richard Perry. Perry disclosed that he owns 16 million shares of the stock at the end of the second quarter, or a 7.26% stake.

Let's not forget that Bill Ackman holds a massive stake in J.C. Penney, at around 18% of the company. That said, Ackman is rumored to be preparing to sell his stake after he resigned from the board last week. I believe that once Ackman announces he's sold his stake in the stock, then we could be set for a short-term bottom and potential large short-squeeze. I believe this because Ackman has been dead wrong on the stock since his initial investment, so the market might interpret his capitulation and more than $300 million loss as the bottom for the stock.

From a technical perspective, JCP has been downtrending badly for the last three months and change, with shares falling from its high of $19.63 to its recent low of $12.34 a share. During that move, shares of JCP have been consistently making lower highs and lower lows, which is bearish technical price action. That said, shares of JCP have started to stabilize a bit and rebound off that $12.34 low with some decent upside volume days. Traders can look for a breakout trade to trigger for JCP if it takes out some near-term overhead resistance levels at $13.99 to $14.13 with high volume. Look for volume on that move that hits near or above its three-month average action of 12.74 million shares.

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