BALTIMORE (Stockpickr) -- June isn't off to such a hot start for stocks. So far, the big S&P 500 index has shed 1.44% since the calendar flipped to June, which admittedly isn't a whole lot on an absolute basis. But relative to the mostly sideways year that stocks have had, it's actually a pretty big decline.
June's little correction means that about 61% of 2015's gains have already been erased this month. No, it's not exactly an auspicious stat -- and it's no surprise that, on average, investors don't feel fantastic about stocks right now. That's not the extent of it; investors downright hate a handful of the biggest stocks on the market.
The good news is that hate can be a pretty powerful market indicator when it reaches extremes -- because it's usually wrong.
That's not just my opinion. The data bear it out as well. Over the last decade, buying the most hated and heavily shorted large and mid-cap stocks (the top two quartiles of all shortable stocks by market capitalization) would have beaten the S&P 500 by 9.28% each and every year.
When I say that investors "hate" a stock, I'm talking about its short interest. A stock with a high level of shorting indicates that there are a lot of people willing to bet on a decline in its share price -- and not many willing to buy. Too much hate can spur a short squeeze, a buying frenzy that's triggered by short sellers who need to cover their losing bets to exit the trade.
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.
Today, we'll replicate the most lucrative side of this strategy with a look at five big-name stocks that short sellers are piled into right now. These stocks could be prime candidates for a short squeeze in the weeks and months ahead.