Not all short squeezes are created equal. Compare the two consumer cyclical stocks Tiffany & Co. (TIF) and Whirlpool (WHR) that recently underwent short squeezes. Although both companies occupy space in the consumer cyclical sector, their similarities go no further. TIF is a high end retailer becoming increasingly tied to the global market with sales in Asia, including Japan, accounting for 40% of overall sales as of October 31, 2011. By comparison, WHR is an appliance manufacturer, which still derives 51% of sales domestically; only 5% of sales came from the Asian region for fiscal 2011.
Last week TIF experienced a short squeeze as a healthy revised 2012 earnings guidance gave the stock a boost. The market responded by making shorts pay up to cover their positions. The short covering only lasted for one day and caused volume to rise to 4x the 30 day average (30DAV). Those who covered their position made a mistake. My Seeking Alpha article "Breakfast at Harry Winston's not Tiffany's," dated March 20, 2012, recommended shorting shares of TIF. Shorting shares of TIF is exactly what investors should have done when the market panicked and the shares gapped up.
WHR experienced a short squeeze of its own back at the beginning of February, which lasted 5 excruciating days for the investors who were short. Day one saw the stock dramatically increase on 7x the 30DAV. This was followed by 4 days of heavy trading (3-4x 30DAV) and resulted in the stock vaulting to $70 per share, over a 30% increase from before the short squeeze. Since then the stock has drifted higher in a flag pattern, and has resulted in the 50DMA crossing above the 200DMA. The 50DMA is virtually at the midpoint of the current stock price and the 200DMA.
While WHR was a classic short squeeze signaling to investors the stock was undervalued and shorts needed to cover, the same cannot be said of TIF. A look at some metrics helps explain some of the reasons. WHR has more yield support with a dividend of 2.6% vs. TIF's 1.6%. Short interest in WHR was peaking around 10%, while TIF's short interest is currently 4.27% and I believe it has room to grow higher. Looking at the charts below, the squeeze in TIF caused the stock to pop over its 200DMA; however this is starting to fail. TIF's volume is still elevated as it tests its 200DMA; 5DAV is 70% higher than its 30DAV. Compare this with WHR's 5DAV, which is 40% lower than its 30DAV.
(Click charts to enlarge)
WHR has stabilized after the short squeeze. TIF has not and I believe presents investors an opportunity to add to a short position. Looking at the charts it's reasonable to estimate that TIF trades below its 200DMA to around $68 per share. Once at this level, TIF will trade sideways until the 50DMA approaches the 200DMA. Investors should look to cover their shorts at the $68 level and look to go long once the moving averages begin to cross.
Disclosure: I have no positions in any stocks mentioned, but may initiate a short position in TIF over the next 72 hours.