Cal-Maine Foods Could Be in Beginnings of a Short Squeeze

| About: Cal-Maine Foods, (CALM)

It was about six weeks ago with Cal-Maine (NASDAQ:CALM) Foods at $28 that I posed the concept that the company may be setting up for a short squeeze. In the last six weeks, the stock has increased by over $4 per share and short interest has actually increased. Are battle lines being drawn, and if so, what is the potential upside and downside?

Over the last year, the low for CALM is just under $27 per share and the high is about $34. It would appear that the bulk of those who went short did not cover when CALM recently dipped below $28 per share. What those investors are now asking themselves is where the bail-out point is.

In my mind, from a technical standpoint, if CALM can break through $34 per share, then those who are short may need to act quickly. While the short interest in CALM is higher than when I published my last piece, the days to cover has moved down to 33. The short data should be updated in the next week or so, and that will tell the story of where this equity sits in terms of a short squeeze. It is higher than average volume that has moved the days to cover down. Could it be that part of that volume is attributable to shorts beginning to cover their position as the equity has gained roughly 20%?

If you are long CALM, there is a certain beauty that comes with being on the right side of a short squeeze. Such squeezes are often short-lived, but present very real gains for those already in the stock. Does this mean it is too late for investors to enjoy a short squeeze if it happens? Absolutely not. While the stock has indeed appreciated, it has not seen the dynamic jump that could happen if any more upward pressure is applied to the shorts.

While there is a risk that a short squeeze will not happen, the downside risk seems to be limited with massive support at $29 per share. The potential upside is substantially higher than the 52-week high of $34. I would venture to say that CALM could pass $40 in the blink of an eye and move toward $45 if a short squeeze materializes.

So far, any squeeze seems to be sputtering and unable to start, but when the short squeeze engine roars to life, it can deliver a fun ride.

Disclosure: I am long CALM.

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