EarningsBeats.com Digest for September 2, 2020
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Gamestop (GME) Could Be In The Midst Of The Mother Of All Short Squeezes
There are a few common denominators to look for in a solid short squeeze opportunity. First, you need to have a lot of traders betting against (shorting) a stock. That is reflected in the "short percentage of float". Anything above 10% is high, though our Short Squeeze ChartList includes only companies that have a short percentage of float above 20%. Next, we need to see a technical breakout that will attract longs in addition to those
having to cover their short positions. Third, we want volume - lots of volume. This helps us to visualize the fact that shorts are beginning to panic and buy. Finally, it never hurts to have the potential short squeeze stock belong to an industry group where money is rotating INTO. That brings me to Gamestop (GME), which, by our account, is THE most heavily shorted stock in the market. Look at this chart, especially the action the past two days:
I would not at all be surprised to see GME continuing to rise in the coming days. It does need to close above 7.82, which is gap resistance from June 2019. Tuesday's high was exactly 7.82. If it's able to clear that level, however, 11-12 could be in the cards. GME is part of a very strong specialty retail group ($DJUSRS) and its short % of float was nearly 100% in mid-August, a level that I'd never seen before. That suggests there
could be plenty of buyers in the near-term and panic buying and a massive short squeeze remains a distinct possibility. Just please keep in mind that owning ANY heavily shorted stock should be viewed as a very aggressive trade. Those with a low risk tolerance will struggle with the likelihood of very high intraday volatility. GME could quickly become an 11 or 12 dollar stock, but the flip side could be a return to 4 or 5 dollars. It's a gamble.
Happy trading!
Tom Bowley
Chief Market Strategist
EarningsBeats.com
Better Timing. Better Trades.
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