"Squeeze" These Stocks for Every Penny They're Worth...

Want to know if the Dow’s going up or down this year? Then you’d better see who wins the Super Bowl on Sunday…

Huh?

See, there’s this market “predictor” called the Super Bowl Indicator. And believe it or not, this thing has a pretty darn good track record…

“As illogical as it sounds, for seven years in a row the outcome of the game has foretold the stock market’s direction for the year,” MarketWatch explains. “Overall, this now has happened after 40 of the 49 Super Bowls, for an 82% completion rate.”

How in blazes does this cockamamie thing work? Well, if an original pre-merger NFL (or NFC team) wins the Super Bowl, the Dow finishes the year higher. A win by the AFC means the Dow will finish the year in the red. The NFC team is favored, by the way. So there’s hope!

Is there any statistical or scientific basis to the Super Bowl Indicator?

Of course not.

But investors are grasping for straws as the market bucks around. They can’t figure out what the heck is going on—and they’ll turn to just about anything for an explanation.

This week alone revealed several developments we haven’t seen in a long, long time. Forgotten stocks and sectors are ripping higher out of nowhere, giving alert traders the opportunity to book fast gains… if they know where to look.

And today you’re going to find out exactly where to look. You could be looking at double-digit gains in days or weeks here. Let me explain how…

Let’s say you’re watching a stock that just hit new lows. The company’s in deep trouble. It missed earnings expectations–again. And there are plenty of short sellers circling. In case you don’t know, short sellers bet on a stock going down. More importantly, they have to buy the stock in order to close out their position.

So what happens when you get a positive catalyst?

Bam! The stock unexpectedly shoots higher. Short sellers scramble to cover their bets, buying back shares and igniting an even bigger move higher. And all this frenzied buying rockets the stock price higher.

When the dust finally clears, the stock’s gained more than 10% in a single trading day. That’s enough to spark an even bigger bounce in the weeks ahead, netting alert traders quick gains.

The scenario I just described is what’s known as a short squeeze. And yesterday, we saw a lot of short squeezes pop up all over the market. One trip to the basic materials and mining side of the street and you’ll notice a ton of stocks popping double-digits. With metals rallying, US Steel turned its frown upside down, posting gains of about 15% on the day (a whopping 43% of its float is short).

Steely Gains

All told, I counted 50 of the most heavily shorted stocks out there up 5% or more yesterday. Fifteen of these stocks were up 10% or more. That’s one hell of squeeze…

Now all we need is to see some follow through

Many of these squeezed stocks have remained locked in powerful downtrends. So while a massive one-day move is nice for daytraders, we’d like to see the gains hold or even extend into next week. If some of these stocks can break out of their funks (and above resistance) we could have some very powerful trades on our hands. Some actual rotation into these beaten-down stocks will have us backing up the truck…

Until then…

Squeeze baby, squeeze.

Sincerely,

Greg Guenthner
for The Daily Reckoning

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