As a contrarian indicator the gigantic short position in this market hasn't worked just yet, but at some point it will. That said, shorting might be a more guaranteed trade than going long crude oil; I wonder if there will be any Congressional pressure to amend the practice. Ironically, there is incredible evidence that the elimination of the "uptick rule" last July has enabled relentless shorting of stocks. I've personally seen what the shorts could do to defensiveless small-cap stocks that didn't have brokerage coverage. Now, many large-cap names don't have that kind of coverage, either. I'm not one for much regulation, but the "uptick rule" kind of kept the market honest. Obviously, the change in the rule is here to stay for years to come.
Some heavily shorted stocks that could rebound for a trade are detailed below.
Big Lots (NYSE:BIG) has been blowing away the consensus earnings estimate for several quarters and yet 45% of the float is shorted.
A move through $35.00 per share should squeeze some of those shorts.
What I found interesting was that there was an elephant-shaped planter my wife wanted and when she went to inquire found that it was the only one left in the store. The same thing happened to us a couple of years ago at Bombay and the store manager refused to sell us the item. Back then, the stock was on death's bed, but now it's dead. The store clerk sold my wife the planter. Maybe this company will make it through this period, although 26% of the shares are shorted.
United Airlines (UAUA) is obviously under pressure as are all the airlines. The stock doesn't have the largest short position in the industry (I think that distinction goes to AMR (NASDAQ:AMR) and Continental (NYSE:CAL)), but it might be best positioned to survive.
There will be more names added to the list throughout the week. These names are mostly trading ideas although I think that they all have a better than 50/50 chance of making it once the dust settles. Visit my website and take a free trial of our premium services to see these ideas in action.
I love the way that the market acted Monday. Sure, it's always disconcerting when a 100+ point Dow Jones Industrial Average rally is erased in the blink of an eye. But, by the same token there was evidence that buyers are waiting in the wings. If it's fear that you want then it's fear that you got. The market is poised to crumble in a heap and then bounce back like a Phoenix. The underlying problems aren't going to repair themselves overnight, but the equities market is in fast-forward mode and could give us a glimpse at how the action will play out on the surface over time.
If investors can be cool during this period and keep their eyes open they will be able to make a ton of money in a short period of time. That said, the pain of these periods can be mitigated with some shorts in the portfolio or other investments that increase in value as the broad market moves lower. I mentioned the UltraShort S&P500 ProShares ETF (NYSEARCA:SDS) three times over the last few months, and we've had a fair amount of other shorts.
Most individual investors don't pull the trigger on those kinds of ideas so when it's time to buy near the bottom they are left with less will power. That self pity (which is a combination of pride, ego, and fear) clouds opportunities. The irony is that this is the time to be in the market. I'm not talking about being fully vested with all your cash, but rather paying full attention and being ready to make moves. Earnings season officially began yesterday with results from Alcoa (NYSE:AA), so it's time to take out the notepad and to pull your chair closer to your PC. Our most profitable stock ideas always come in the midst or at the conclusion of earnings season.
Written by Charles Payne, CEO and Principal Analyst of Wall Street Strategies (www.wstreet.com) providing information to over 50,000 subscribers. Charles is a regular contributor to the Fox Business and Fox News Networks.