For traders and speculators, commodities are one place to see large profit gains. This is primarily due to the tremendous amounts of volatility and momentum in a number of areas. As a result, there is the possibility that short squeezes could be occurring in the stock prices of select producers. To determine the best candidate requires examining Kinder Morgan (KMI), Molycorp (MCP), AK Steel Holdings (AKS), Patriot Coal (PCX) and ATP Oil & Gas (ATPG). Please use my analysis and opinions as a starting point for your own research.
Kinder Morgan currently trades above the 200 day moving average of $28.07 (which is bullish). These moves follow a steady upward pattern since the stock reached support levels of $23.51 in late August. The total number of shares sold short is 24.62 million or 11.50% of the float. The earnings since the firm began publicly trading in March were better than expected, going from $.12 to $.21. These different figures make the stock a good possible short.
However, the strong upward momentum has been fueled by consistently low volume. This is indicating that there could be some kind of pent up demand from a portion of the short interest. As a result, if the company is able to beat the Wall Street number in its next earnings report, the aforementioned could serve as a catalyst for the shorts to begin covering all at once (a classic squeeze). Anyone that is looking for a good entry point needs to watch the reaction of the price in comparison with earnings. Once this happens it is possible to identify a strong momentum trade with good news.
Molycorp has been trading below the 200 day moving average of $47.95 (which is bearish). The decline was based on concerns about the company being able to expand a rare earth mine in California. The land is controlled by the Bureau of Land Management and there has been debate about these activities. The short interest is 14.95 million shares, or 32.50% of the float. The earnings have been steadily rising since the first quarter of 2011 ranging from -$03 to $.67.
These figures are illustrating how Molycorp is a good possible short squeeze (based on the high short interest). The concerns about the mine expansion project caused the stock to go into a bearish pattern (despite the firm posting higher than expected earnings). As a result, investors should watch the upcoming earnings per share number. If this amount is rising, the bears could be forced to cover at the same time (creating a possible short squeeze).
AK Steel Holding
AK Steel Holding currently trades below the 200 day moving average of $10.90 (which is bearish). Since October, shares have climbed off of these lows and are testing resistance levels of $10.00 (on low volume). The short interest is 24.70 million or 20.70% of the float. During the last year earnings have been volatile, ranging from -$.49 to -$.03. These numbers are showing how AK Steel Holding is a good possible short candidate.
The aforementioned is based upon the low trading volume, high short interest and sharp bottom. The tremendous amounts of volatility in the price and earnings are an indication of the risk. As a result, investors need to be cautious and find some kind of a catalyst that will drive shares higher. In this case, the most likely candidate would be better than expected earnings (during the next report). If this were to happen, the volume will increase and shares could test $14.00. The opposite of this is disappointing earnings per share (which could lead to a retest of the lows). Therefore, it is prudent to monitor the earnings and the reaction of the stock.
Patriot Coal is currently trading below the 200 day moving average of $15.73 (which is bearish). Since setting a 52 week low in October of $6.92, shares have been steadily climbing. At the end of October is when the stock touched resistance levels of $13.50, and has reversed to retest the lows. The short interest in the firm is 14.71 million or 17.20%.
The earnings over the last 52 weeks have been unstable, ranging from a -$.26 to -$.75. These numbers are showing how Patriot Coal is an ideal candidate for some kind of short squeeze. The aforementioned is based upon the volatility in the price of the stock and earnings per share. As a result, investors need to be carefully watching the quarterly earnings report. If the firm has declining losses, the price could begin to trade higher. The reason why is traders' becoming enthusiastic about these numbers. The upward momentum will lead to short covering and a possible squeeze.
ATP Oil & Gas
ATP Oil & Gas is currently trading below the 200 day moving average of $12.03 (which is bearish). Since touching a 52 week low at support levels of $5.53 the stock has been rallying towards $7.50. The volume during this time was light. The short interest is 19.60 million shares, or 51.20% of the float. In the last year earnings have been rising from -$3.7 to -$.11. The improving numbers have sparked hope that the firm could be about experience positive earnings per share.
These elements show how ATP Oil & Gas is a good candidate for a short squeeze. The aforementioned is based upon the low levels of volume, high short interest and lack of reaction to large improvements in the earnings. However, the stock is in a bearish pattern and earnings are known for being volatile. As a result, there must be careful attention paid to the earnings per share (during the next quarterly report). If the company is posting positive numbers, the price could test $9.00 per share. Once this stock reaches these levels, there is the possibility of seeing some kind of reversal. These changes would occur from the short interest declining and the volume seeing a temporary spike. Therefore, investors need to be watchful of these numbers and the impact on the price of the stock.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.