Tower Group International

One insurance player that could be preparing for a large short-squeeze soon is Tower Group International (TWGP), which underwrites insurance and reinsurance products in Bermuda, the U.S., and London markets. This stock has been annihilated by the bears over the last six months, with shares down by a remarkable 83%.

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The current short interest as a percentage of the float for Tower Group International is extremely high at 23.2%. That means that out of the 53.18 million shares in the tradable float, 2.9 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 12.6%, or by about 1.41 million shares. Are the short-sellers pressing their luck here with shares of TWGP? I believe they are and this stock is preparing to squeeze them hard.

If you take a look at the chart for Tower Group International, you'll notice that this stock has recently formed a major bottoming chart pattern at $2.41, $2.44, $2.40 and $2.50 a share. Following that bottom, shares of TWGP have started to spike higher off those key support levels and the stock is now quickly moving within range of triggering a major breakout trade above some near-term overhead resistance levels.

Traders should now look for long-biased trades in TWGP if it manages to break out above some near-term overhead resistance levels at $2.85 to its 50-day moving average of $2.97 and then more resistance at $3 a share. Look for a sustained move or close above those levels with volume that hits near or above its three-month average action of 2.67 million shares. If that breakout triggers soon, then TWGP could easily squeeze back towards its next major overhead resistance levels at $3.40 to $4.10 a share, or even $5 a share. There's also a monster gap-down-down zone that sits right above $5 a share that the shorts will want nothing to do with.

Traders can look to buy TWGP off any weakness to anticipate that breakout and simply use a stop that sits right below those key near-term support levels at $2.50 or at $2.40 a share. One can also buy TWGP off strength once it starts to take out those breakout levels with volume and then simply use a stop that sits a comfortable percentage from your entry point.

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