Goldman Sachs identified 20 stocks with high short interest that could be primed for a short squeeze, particularly if upcoming earnings reports exceed expectations, providing opportunities for traders.
In a note shared this week, analyst John Marshall and his team saw the potential for substantial upside for this group of stocks if the current trend of short-covering continues.
What Is A Short Squeeze?
A short squeeze happens when a stock with high short interest sees a rapid price surge, forcing short sellers to buy back shares to cover their positions. This buying frenzy often propels the stock price even higher.
Short sellers bet that the price of a stock will fall, borrowing shares to sell them at the current price with the intent of repurchasing them at a lower price.
When a stock rises instead, short sellers scramble to cover their positions, accelerating the stock’s upward momentum.
Short squeezes typically occur when heavily shorted stocks see unexpected positive news or earnings results, triggering forced buying.
Relief Rallies On Earnings
Goldman analysts also highlighted that heavily shorted stocks tend to be more prone to “relief rallies” around earnings.
A relief rally occurs when stocks perform better than expected after earnings, alleviating bearish concerns and pushing share prices higher.
"We see greater than normal potential for relief rallies on earnings," said Marshall.
The Goldman Sachs team screened for 20 stocks with high short interest, liquid options, upcoming earnings, and a Buy rating from their equity research department.
Analysts at Goldman Sachs recommend to buy call options in order to bet on a potential short squeeze.
Call options give investors the right, but not the obligation, to buy a stock at a specific price within a set timeframe. This strategy limits risk while allowing for participation in any significant price increases due to a short squeeze or positive earnings surprise.
Goldman Sachs Names 20 Stocks Primed For Short-Squeeze Rallies
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