Short selling activity is a criterion that is not so often taken into consideration in the investment world. However, even though short-sellers can not be considered market makers, their activity may have a point, and it may show that a decline in price is not far away. For some stocks, which have a high short percentage of float (tradable shares), the price can climb as shorters are covering their positions.
An increased demand together with a reduced supply of shares, forces individuals, who hold short positions, to buy shares while the price increases rapidly, a situation known as a “short squeeze.” In a “short squeeze” speculators can earn good money by capturing short-term price movements. We would like to present five of the most massively shorted stocks in the S&P 500 Index. These companies have experienced the highest level of short trading as a percentage of float.
Highlights include J.C. Penney Company, Inc. (NYSE:JCP) and First Solar, Inc. (NASDAQ:FSLR). Interestingly, the 52-week returns of these stocks vary, indicating that the bears aren’t always correct in their convictions.
First Solar, Inc. (NASDAQ:FSLR), despite the fact that it has almost no debt (total debt-to-equity ratio of 0.16), is using low-efficiency film technology for producing power, which is a disadvantage in front of its competitors from China.
J.C. Penney Company, Inc. (NYSE:JCP), meanwhile, is facing well-known problems, having suffered a long history of having to discount merchandise dramatically in order to move it out the door. At the same time, it is becoming clear that Wall-Street investors, as well as shoppers on Main Street are losing confidence in J.C. Penney’s business strategy.