You can normally tell stocks that may be headed for a dip by judging the volume of their short interest. Heavily shorted stocks are stocks that investors are placing bets on to drop in price. Stocks can be shorted for fundamental reasons or just plain speculation. Currently, three of the top five stocks being shorted are in the financial sector.
Let’s take a look at the five most heavily shorted stocks.
1. Citigroup (C) – 401 million shares
2. Ford Motor Corporation (F) – 289 million shares
3. Bank of America (BAC) – 153 million shares
4. Qwest Communications (Q) – 136 million shares
5. Synovus Financial (SNV) – 96 million shares
The short interest in Bank of America, Citigroup, and Synovus Financial tells you that traders are expecting poor earnings reports from both banking giants. The heavy short interest in Ford is surprising because the company seems to have turned things around and its earnings have rebounded nicely. Traders seem to be giving the thumbs down to CenturyLink’s acquisition of Qwest. The short interest in Synovus makes sense because the financial company is drowning in red ink. The company continues to be plagued by negative earnings and is not expected to return to profitability for years.
Disclosure: The author owns Bank of America shares