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One potential problem for shorts is when too many people short the same stock. When a stock is shorted to the point where it becomes an overcrowded trade, it can spark panic buying (a short squeeze). A short squeeze is a big risk for shorts. A small jump in price and/or some good news being released by the company can spark buying by shorts who want to cover their shorts and cut potential losses before other shorts.

The past few weeks have been great for shorts in general as the market has declined, but the momentum almost always turns. Charles & Colvard Ltd. (NASDAQ:CTHR) is my top pick out of all of these stocks for a significant short squeeze. CTHR looks like a stock that could punish shorts due to a combination of low volume (average volume of only about 13,700) combined with about 1 million shares short. Based on the average volume, it could take shorts over two months to cover CTHR. Here are some companies that could be next to see a short squeeze:

Sealy Corp., (ZZ) shares are trading at $1.49. Sealy is a maker of mattresses and is based in North Carolina. These shares have traded in a range between $1.09 to $3.11 in the last 52 weeks. The 50-day moving average is $1.66 and the 200-day moving average is $2.35. Earnings estimates for Sealy are for a profit of 7 cents per share in 2011 and 12 cents for 2012. This stock was trading around $3 earlier this year and insiders were buying shares at that level and just recently bought more. According to the latest data on shortsqueeze.com, there are about 15 million shares short. Based on average volume of just about 400,000 shares traded per day, it would take about 36 days worth of volume to match the number of shares short.

Cenveo, Inc., (NYSE:CVO) is trading around $3.17. CVO is a printing company based in Connecticut. The 50-day moving average is $3.58 and the 200-day moving average is $5.38. These shares have traded in a range between $2.64 to $6.85 in the last 52 weeks. Earnings estimates for CVO are for a profit of 47 cents per share in 2011 and 63 cents for 2012. According to the latest data on shortsqueeze.com, there are about 7.2 million shares short. Based on average volume of just about 400,000 shares traded per day, it would take about 18 days worth of volume to match the number of shares short.

Overstock.com (NASDAQ:OSTK) shares are trading at $10.59. Overstock is a online retailer and is based in Utah. The 50-day moving average is about $9.99 and the 200-day moving average is about $13.49. The 52 week range is $8.79 to $17.49. Earnings estimates are at 12 cents for 2011 and 22 cents for 2012. According to the latest data on shortsqueeze.com, there are about 1.4 million shares short. Based on average volume of just about 64,000 shares traded per day, it would take about 22 days worth of volume to match the number of shares short.

Supervalu (NYSE:SVU) shares are trading at $8.14. Supervalu is a leading grocery store company and is based in Minnesota. The 50-day moving average is about $7.32 and the 200-day moving average is about $8.43. The 52 week range is $6.26 to $11.77. Earnings estimates for SVU are $1.22 per share in 2011 and $1.25 for 2012 so the PE ratio is about 6 on these shares. Supervalu pays a dividend of about 35 cents per share which is equivalent to a yield of 4.3%. According to the latest data on shortsqueeze.com, there are about 47 million shares short. Based on average volume of just about 5.7 million shares traded per day, it would take about eight days worth of volume to match the number of shares short.

Syntroleum Corp. (NASDAQ:SYNM) is trading for 90 cents. Syntroleum develops and markets synthetic fuels. This includes diesel fuels, heating oil, aviation fuels, lubricants, naphtha, etc. The 50-day moving average is about $1.01 and the 200-day moving average is $1.57. The 52 week range is 76 cents to $2.45. According to the latest data on shortsqueeze.com, there are about 4.5 million shares short. Based on average volume of just about 340,000 shares traded per day, it would take about 13 days worth of volume to match the number of shares short.

Charles & Colvard Ltd. (CTHR) shares are trading at $1.84. CTHR is a maker and retailer Moissanite jewelry products. Moissanite is a diamond-like jewel and this company is the sole source for Moissanite worldwide. The 50-day moving average is $2.26 and the 200-day moving average is $2.78. These shares have traded in a range between $1.58 to $3.99 in the last 52 weeks. This company recently launched a new website to sell jewelry and announced plans to market jewelry products directly to consumers. According to the latest data on shortsqueeze.com, there are about 1 million shares short. Based on average volume of just about 13,700 shares traded per day, it would take about 72 days worth of volume to match the number of shares short. The company has a solid balance sheet and if the new website and direct to consumer sales plans work, this stock could surge from currently depressed levels. The short trade here is extremely overcrowded, and it wouldn't take much for this stock to pop back to $2.50 plus. Another indicator shorts might have gone to far in pushing this stock down is the fact that insiders have been buying this stock recently and in repeated transactions, which you can see here.

The data is sourced from Yahoo Finance, Shortsqueeze.com and Stockcharts.com. The information and data is believed to be accurate, but no guarantees or representations are made. Rougemont is not a registered investment advisor and does not provide specific investment advice. The information contained herein is for informational purposes only.

Source: 6 Stocks With Big Short Squeeze Potential