4 Short Squeeze Plays that Could Make You a Bundle in 2014

You’re going to want to give me a big, fat squeeze after today.

Huh?

I mean… you’re going to be so happy with me after I show you how to book some quick gains through short squeeze plays, you’re going to want to hug me.

Here’s what I mean…

After last month’s market bloodbath, a lot of investors bet against stocks by piling into short positions. Why? Because they thought we were finally looking at the big one — the much-predicted market correction that would send the market reeling.

[Short sellers] have to get out of their positions now or risk losing their shirts as stock prices head higher.

But they were wrong. That deafening silence you’ve been hearing is the sound of stocks not crashing. In fact, the major averages have pushed towards new highs. The NASDAQ’s up about 400 points since it bottomed out on October 16th. The Dow’s up about 1,400 points. The S&P’s up more than 175. So anyone with big bets against stocks is sweating bullets right now. And the higher stocks go, the more lead will be oozing from the pores of short-sellers.

That’s where the “squeeze” — and your huge profit opportunity — comes in.

It’s a little complicated, but here’s the quick-and-dirty explanation. Short sellers have to first borrow the stocks they’re shorting from a broker. And in order for short sellers to exit their positions, they have to literally buy the stock they’ve borrowed. That’s the only way they can get out. And the higher the stock goes, the more they’ll have to pay for it. So when a heavily-shorted stock starts to move higher, you have whole herd of shorts running for the exit as they buy back those borrowed shares.

Here comes the good part. The shorts are forced to cut their losses, or risk things getting even worse. And that’s the position short sellers are in right now. They have to get out of their positions now or risk losing their shirts as stock prices head higher.

So, what will happen when enough shorts start buying their stocks? All of the buying pushes the prices of the rising stocks even higher very, very quickly.

When the short sellers panic all start buying back shares at once, it can produce a big spike in the stock price. Which could happen to at least 82 stocks I know. More on those in a second…

That means we’ve got an excellent chance to snap up stocks right now that could spike dramatically over the next couple of months, as frantic buying by shorts jacks prices.

Right now is the perfect time to pull the trigger. Why? Because not only has the market has snapped back to all-time highs in spectacular fashion, leaving shorts horribly exposed… but more importantly, it’s the traditional hunting season on short squeeze playse. We’re entering what are typically the best six months of the year for the stock market.

Since 1950, the S&P has averaged more than 7% returns between November and April. Meanwhile, it returns a measly 1% average between May and October, according to my friend and market stat-man Ryan Detrick. The potential for a big rally grows every day. So if you’re a short seller, you’re looking to get the hell out now. Everything’s going against you.

Right now, I count a whopping 82 stocks that have short interest of 20% or higher. This means that of all of the shares available to buy and sell, more than 20% of them are held by traders betting on lower prices. And many of these heavily-shorted names are starting to bottom out and move higher. Take a look:

Short Squeezes Could Fuel Another Market Run

Just look at shares of The Fresh Market (NASDAQ:TFM). Short sellers were trying to eat this grocery stock alive earlier this year. In fact, more than 27% of its tradable shares are still sold short. And when this stock finally ripped through its September highs this week, the squeeze was on! Yesterday alone, the stock shot up more than 6% (thanks in part to a solid earnings beat by competitor Whole Foods). The shorts pressed their bets. Now, they get the squeeze.

All four of the charts I outlined above have plenty of investors betting that prices are going to fall. Each of these companies has short interest of at least 20%. With so many investors expecting lower prices, any optimistic news can trigger a powerful short squeeze. That’s how you get the huge pops we saw yesterday in TFM — even when the market is essentially flat.

Regards,

Greg Guenthner
for The Daily Reckoning

P.S. Of course, these four names aren’t the only stocks that are currently susceptible to a short squeeze. As the major averages slowly tick higher, plenty of these hated stocks could trigger a hugely profitable short-term trade. Click here to sign up for my Rude Awakening e-letter, for FREE, and be sure to get the most up-to-date profit opportunities before anyone else.

The Daily Reckoning