When looking for solid long trading candidates, one of the things astute traders look for are those stocks with high short interest. In other words, those stocks that traders are heavily betting against. Why, you might ask? Because if you can identify companies with a high percentage of short interest that also have solid-looking charts, there's a decent chance you can bag some nice profits.
As an example, take a look at the chart below on Camping World Holdings (CWH), a stock on our "Short Squeeze ChartList" that contains over 140 stocks with high short interest.
For this particular stock, 36% of the shares available to be traded are short, meaning 36% of shares available to be traded in this company are held by those betting AGAINST the company. Why does this matter? It matters because when a stock gets hot, like this one did when it bottomed alongside the overall market and started rising, it puts pressure on those who are short; it's heading in the opposite direction of what they bargained for.
Think of it this way. When you buy a stock on the long side, you are looking for it to move higher to profit. And when you buy that stock, you know exactly how much you can lose if the trade goes against you. For example, if I buy a stock with a price of $10, I know the most I can lose is $10 times the number of shares I purchase. When you sell a stock short, you are looking for it to move lower to profit. But there's no theoretical "ceiling;" a stock could go to infinity, which becomes a very scary proposition when you are holding it short! So, quite often when a stock marches higher, those who have short positions feel "squeezed" and often have to bail to help limit losses. That works to the benefit to those on the long side.
It might seem like a complicated concept, but it's not. In fact, EarningsBeats.com Chief Market Strategist Tom Bowley has created the "Short Squeeze ChartList", which currently has over 140 heavily-shorted stocks, and he will be discussing this list - including how it is created and some key results - during a webinar scheduled for this Monday, June 1 at 4:30pm ET. This is a FREE webinar open to our subscribing members, as well as those who receive our Free EarningsBeats Digest newsletter. So if you want to join Tom on Monday and are NOT currently an EarningsBeats.com subscriber or an EarningsBeats Digest subscriber, just click on this link to sign up for the EarningsBeats Digest and save a seat for Monday's event.
Making money when trading is a tough proposition on its own. Why not find new ways to increase your chances of succeeding?
At your service,
John Hopkins EarningsBeats.com