Benzinga - by Adam Eckert, Benzinga Staff Writer.
A multitude of stocks with high short interest ripped higher on Monday and continue to rally on Tuesday. The initial moves higher appear to be due to retail traders rushing into heavily shorted names, but the continued momentum may have more to do with short covering. Here’s what you need to know.
What To Know: The rally in heavily shorted stocks this week got started when Keith Gill, best known as Roaring Kitty on YouTube and X or "DeepF***ingValue" on Reddit, posted a simple meme of a person leaning forward in a chair after being silent on social media for three years.
GameStop Corp (NYSE:GME) was the first stock to move, but it didn’t take long before retail traders began targeting other stocks with high short interest.
If a stock has high short interest, it means many people are betting that it’s overvalued and poised to trade lower as a result. In order to short a stock, an investor must borrow shares from a brokerage and sell those shares in the open market. The goal is to then buy those shares back at a lower price, allowing the investor to profit from the difference.
If an unforeseen bullish catalyst pushes shares higher, short sellers may be forced to exit the trade by buying their shares back at higher prices. Such can result in a short squeeze, and retail traders are well aware. Retail often targets heavily shorted names in an attempt to induce short squeezes by forcing short sellers to cover their positions.
Many of the outsized moves across markets to start the week are indicative of short covering. According to a CNBC report citing data from S3 Partners, short sellers in GameStop stock lost approximately $838 million on Monday.
"Expect short covering in this stock as it already had a 100/100 squeeze score prior to today's trading," Ihor Dusaniwsky, managing director of predictive analytics at S3, reportedly said.
Short sellers are continuing to get wrecked on Tuesday, with GameStop shares up another 51.3% at the time of writing, per Benzinga Pro. But GameStop isn’t the only retail name sending shockwaves across markets this week.
Dusaniwsky noted that AMC Entertainment Inc (NYSE:AMC) short sellers were down $127 million on Monday and are down another $244 million on Tuesday as of the time of writing.
SunPower Corp (NASDAQ:SPWR) sits atop Fintel’s short squeeze leaderboard when sorted by short float. According to data from Benzinga Pro, 59.04% of SunPower's float is sold short. The stock was up approximately 55% at last check. Dusaniwsky reported that SunPower shorts lost about $19 million on Monday and are down another $94 million in midday mark-to-market losses Tuesday.
Beyond Meat Inc (NASDAQ:BYND) is another name with very high short interest. 36.87% of the float is currently sold short and the stock is up more than 21% at the time of writing.
Plug Power Inc (NASDAQ:PLUG) and Virgin Galactic Holdings Inc (NYSE:SPCE) shares are also moving swiftly Tuesday with Plug shares up 28% and Virgin Galactic shares up 17%. Approximately 25% of Plug’s float is being sold short, while about 24% of Virgin Galactic shares are being shorted.
Other names that appear to be moving as a result of short covering include Clover Health, Tupperware Brands, FuelCell Energy and BlackBerry, among others.
Read Next: Expect Rate Cuts, Not Recession: Fund Managers Most Bullish On Stocks In Over 2 Years
Photo: Sergei Tokmakov from Pixabay.
© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.