Friday, June 27, 2014

A Lundin Short Squeeze?

Just to refresh - according to Investopedia, a “Short Squeeze” is a situation in which a heavily shorted stock or commodity moves sharply higher, forcing more short sellers to close out their short positions and adding to the upward pressure on the stock – etc,,,

So - at June 13, 2014 the five largest short positions on the TSX were Lundin Mining Corp (LUN) 57,731,739, Manulife Financial Corp (MFC) 48,856,265, Bombardier Inc  (BBD.B) 47,286,537, TD Bank (TD) 39,832,937 and New Gold Inc (NGD) 35,183,624.

One of the “old fashioned” technical plays is to seek out stocks with high short positions – in this case Lundin at 57 million shares is about 10% of the O/S shares – and see if the stock price is displaying price out-performance vs. a broader index such as the S&P/TSX60 index or a sub sector such as the TSX Metals & Mining group. So we need two conditions in order to generate a short squeeze – 1) lots of shorts and 2) strong relative performance vs. a relevant index. Our chart today is Lundin Mining – daily plotted above the broader TSX60 index – and as we can see by the lower relative perform lines – the current buying pressure could “panic” the shorts to buy back or cover their positions. One other observation – the best short squeeze opportunities are in stocks that are currently out of favour – and as we all know - everybody hates copper stocks.


dh12 said...

I think you should add a third criteria that is that the stock in question is making either a new 52 week high or an all time high

dh12 said...

I have an american stock that may fit your short squeeze criteria. WLT walter energy a coal stock. What could be more unpopular than coal right now? But in the past month or so it has relative out performance with S&P 500 and has a massive 61% short interest. said...

Hello dh12

Looks like a good idea as WLT

passes our three tests

Bill C