Sears Offers Short Squeeze Preview Following Macy's News

Struggling retailer Sears Holdings Corp SHLD demonstrated a hint of its explosive short squeeze potential on Friday when the stock jumped roughly 8 percent in a matter of minutes following reports that Hudson’s Bay may be interested in a buyout of Macy’s Inc M.

The news has Macy’s shares up 6.6 percent on the day, but the knee-jerk reaction from Sears should serve as a warning for any traders betting against the stock.

According to Yahoo, there are currently 15.7 million shares of Sears stock held short. Based on the stock’s current float, that short interest represents an incredible 68 percent of the shares available on the market.

While Sears shares have plummeted another 59.9 percent in the past year, short interest has drifted higher by 15.5 percent.

Sears short sellers have plenty of evidence to point to that suggest Sears has little chance of executing a long-term recovery. However, the stock’s massive short position and historically-low market expectations make it a dangerous short bet. As Friday’s trading action demonstrates, even reports of a possible consolidation in the retail space is enough to trigger an 8 percent jump.

Sears is expected to report Q4 earnings later this month, and the performance bar is exceptionally low. If Sears put together a holiday shopping season that was even slightly less-bad than anticipated, Friday’s 8 percent move may be just a fraction of the short squeeze the stock could unleash following earnings.