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If a stock becomes highly shorted and oversold, a short squeeze may occur in which a bump up in stock price forces short sellers to close their positions, adding even more upward momentum to the stock price and causing even more short sellers to close their positions. The key is to determine when short selling hits an extreme.

Following this idea, we ran a screen on companies that are technically oversold [with RSI(14) below 30] and have also seen significant increases in shares shorted month-over-month.

Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the stocks mentioned below. Analyst ratings sourced from Zacks Investment Research.


Short sellers think there's more downside to these oversold names--is this pessimism justified? Or will some of these names see a short squeeze as short sellers cash in their profits?

List sorted by market cap.

1. Netflix, Inc. (NASDAQ:NFLX): Provides subscription based Internet services for TV shows and movies in the United States and internationally. RSI(14) at 25.83. Shares shorted have increased from 8.55M to 9.56M over the last month, an increase which represents about 1.98% of the company's float of 51.12M shares.

2. Red Robin Gourmet Burgers Inc. (NASDAQ:RRGB): Develops, operates, and franchises casual-dining restaurants in the United States and Canada. RSI(14) at 29.8. Shares shorted have increased from 2.04M to 2.28M over the last month, an increase which represents about 1.89% of the company's float of 12.69M shares.

3. Kratos Defense & Security Solutions, Inc. (NASDAQ:KTOS): Provides engineering, war fighter, security, and information technology services, solutions, and products in the United States. RSI(14) at 28.88. Shares shorted have increased from 3.51M to 3.87M over the last month, an increase which represents about 1.2% of the company's float of 29.95M shares.

4. Le Gaga Holdings Ltd (NASDAQ:GAGA):
Engages in cultivating, processing, and distributing vegetables. RSI(14) at 28.57. Shares shorted have increased from 320.99K to 492.77K over the last month, an increase which represents about 1.18% of the company's float of 14.59M shares.

5. USEC Inc. (USU): USEC Inc., together with its subsidiaries, supplies low enriched uranium (NYSE:LEU) to commercial nuclear power plants in the United States and internationally. RSI(14) at 27.96. Shares shorted have increased from 25.50M to 27.69M over the last month, an increase which represents about 1.96% of the company's float of 111.47M shares.

*Short seller data sourced from Yahoo Finance, RSI(14) readings sourced from Finviz.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Source: Short Squeeze Ideas: 5 Oversold Stocks Targeted By Short Sellers