10 Hot Stocks At Risk Of A Short Squeeze

Short squeezes are one of the most powerful short-term market catalysts and can generate huge surges in share price.

A short squeeze occurs when a heavily shorted stock rises enough that it begins to force its short sellers to close their position by buying the stock. That short covering volume contributes to the rising price, and the short squeeze can accelerate quickly.

S3 Partners analyst Ihor Dusaniwsky recently compiled a list of stocks that are either currently experiencing a short squeeze or are on the brink of a potential short squeeze.

“In general, short squeezes are precipitated by large mark-to-market losses due to upward price movements of the shorted stock and/or high stock borrow financing rates which make it unprofitable to stay in trades for long periods of time,” Dusaniwsky said.

Top Stocks To Watch: S3 named Tesla Inc (NASDAQ: TSLA) as the largest short squeeze taking place in the market today. Tesla short sellers have endured $20 billion in year-to-date, net-of-financing losses on Tesla, and Dusaniwsky said an additional $2.5 billion in losses in recent weeks has continued to scare away short sellers. He expects Tesla’s stock will likely trade even higher in the short-term as the Tesla squeeze continues.

Related Link: Tesla Demonstrates Why Short Selling Is So Much More Dangerous Than Going Long

Nikola Corporation (NASDAQ: NKLA) took a big hit on Monday, but Dusaniwsky said the stock’s borrow fees of more than 600% is applying severe pressure to short sellers. Monday’s sell-off may have relieved some of that pressure, but traders should keep an eye on the stock if it rebounds in the coming weeks.

Moderna Inc (NASDAQ: MRNA) is another top short squeeze candidate that may be safe for now after JPMorgan downgraded the stock due to valuation concerns. Dusaniwsky said Moderna short sellers have taken a $1.5 billion hit in 2020 and there is $2.4 billion in short interest in the stock that could drive massive buying volume if the company hits a home run with its coronavirus vaccine candidate.

Other Short Squeeze Candidates: In his report, Dusaniwsky also highlighted the following seven stocks as top short squeeze candidates for traders to watch:

• Hanesbrands Inc. (NYSE: HBI)
• Virgin Galactic Holdings Inc (NYSE: SPCE)
• Roku Inc (NASDAQ: ROKU)
• Bloom Energy Corp (NYSE: BE)
• Live Nation Entertainment, Inc. (NYSE: LYV)
• Waters Corporation (NYSE: WAT)
• Novavax, Inc. (NASDAQ: NVAX)

Benzinga’s Take: Identifying a potential short squeeze candidate and successfully trading a short squeeze are two different challenges. Short squeezes are notoriously volatile and unpredictable, and even traders that recognize what is happening can lose money trying to time their entries and exits.