There are two primary forces that produce short side squeezes â€“ trading losses and high stock borrow financing costs. Over the past week there were twelve domestic stocks that had short interest over $50 million with stock borrow fees increasing by 1.00% fee or more. Of those twelve, there were eight stocks that lost money during the month.
There are several stocks that are prime candidates for a short squeeze with Clovis Oncology Inc (CLVS) heading up the short list. Last week CLVS short sellers were still in the black, but Novartisâ€™s (NVS) $9.7 billion offer for Medicines Co (MDCO) has sparked renewed M&A interest in the biotech sector and CLVSâ€™s stock price hit a recent high of $16.43/share on the news. Although CLVSâ€™s stock price has slipped from Mondayâ€™s high, shorts may be looking to trim their exposure in the stock after stock borrow fees increased by over 38% to 133.29% fee this week and spot borrow rates have climbed over the 150% level in recent trading. Shorts are paying $949 thousand in daily stock borrow fees, and with the expected hike in rates the number will top $1.2 million per day by early next week. With almost 29 million CLVS shares shorted, a short squeeze would boost its stock price significantly.
It costs 26.54% fee to borrow ADT Inc (ADT) stock and rates have climbed 4.25% this week which equates to $243 thousand in stock borrow expense daily. Shorts are down almost $141 million in net-of-financing mark-to-market losses, including down over $43 million this week. We are seeing stock borrow rates in the 40% to 50% fee range today as stock borrow supply is almost fully tapped out which will increase daily stock borrow costs to the $425 to $450 thousand/day range. If ADTâ€™s stock price rallyâ€™s back to its year-to-date high of $9.57/share that it hit last week, we should see a squeeze that forces some of its 36 million of shares shorted begin to be bought back. With average trading volume only 1.55 million shares/day, a short squeeze would move ADTâ€™s stock price prodigiously.
Crowdstrike Holdings Incâ€™s (CRWD) stock price only rose by 1.75% fee to 23.04% fee last week, but we are seeing spot stock borrow rates on the mid-30%â€™s fee level today. Stock borrow expenses, which are already $325 thousand/day, will climb to nearly $500 thousand/day if rates continue to rise at this pace. CRWD short sellers are still up $107 million in net-of-financing mark-to-market profits for the year, even after being down $43 million this week. With analystsâ€™ raising their CRWD price targets after third quarter results which beat earnings estimates and showed strong year-on-year subscription growth, we may see short sellers cutting some of their exposure in order to realize apportion of their unrealized profits. With short interest of $507 million and 9.6 million shares shorted, a rush to the exits will push its stock price closer to the $70+ target prices we are seeing from analystsâ€™ revisions.
While Gamestop Incâ€™s (GME) stock borrow fee only increased by 1.00% fee to 27.54% fee this week we are seeing higher spot rates on smallish stock borrows getting closer to the 50% fee level today. GME shorts are already paying$333 thousand of stock borrow fees per day, and if rates hit the 50% fee level their daily stock borrow expenses will near the $600 thousand/day level. GME shorts are up $197 million for the year, including down $43 million this week, but if the rally that started in mid-August continues we may see shorts buying back some of their positions, especially if stock borrow fees hit 50%.
Other stocks that may be squeezed due to recent mark-to-market losses and increasing stock borrow expensesÂ are Inseego Corp (INSG), GTT Communications (GTT),Â Â Cel-Sci Corp (CVM) and Plug Power Inc (PLUG).
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Managing Director Predictive Analytics, S3 Partners, LLC
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