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Long and Short Squeeze Candidates

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Type 1 Short Squeeze and Type 4 Long Squeeze - that is hedged!

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Strategy:

Every week we update this screen from our selected Erlanger universe of issues (these include the Dow 30 issues, S&P 100 issues, NASDAQ 100 issues and more). This screen mines for those issues that our data uncovers as "short squeeze" candidates. We find these attractive because the price action is relatively positive despite the heavy short selling. We also screen for those issues that our data uncovers as "long squeeze" candidates. We find these unattractive because the price action is relatively weak despite the little short selling.

Short Squeeze Screen

Last week's Short Squeezes from this screen averaged 1.57%, compared to a -0.62% loss in the S&P 500. (The Long Squeezes averaged 0.20%, so the hedge between the Short and Long Squeeze screens was a gain of 1.37%.) Since we began publishing these screens (1484 calendar days ago), the hedge has gained 173.63% compared to a 18.68% change in the S&P 500. Several issues contributed to the strength of the Short Squeeze screen: EXAR (3.48%), NIHD (8.50%), TEK (1.56%), USM (2.52%), RFMD (6.27%), CTVS (6.37%) and BEAS (2.34%.)

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Type 1 Screen Deletions: IR, EK, ALTR, EXAR, TEK, USM, MRK, BEAS
Type 1 Screen Additions: DISH, GMT, BMY
Type 1 Screen Holdovers: NIHD, PMCS, RFMD, CTXS, ITWO, HON

Long Squeeze Screen

Last week's Long Squeezes from this screen averaged 0.20%, compared to a -0.62% loss in the S&P 500. (The Short Squeezes averaged 1.57%, so the hedge between the Short and Long Squeeze screens was a gain of 1.37%.) Since we began publishing these screens (1484 calendar days ago), the hedge has gained 173.63% compared to a 18.68% change in the S&P 500. Several issues contributed to weakness of the Long Squeeze screen: ADBE (-4.22%), PG (-1.89%), EMC (-0.51%), TYC (01.65%), DNA (-0.49%), AMAT (-2.40%) and GENZ (-1.02%.)

Click to see larger image:



Type 4 Screen Deletions: ADBE, GE, NSM, SYMC, EMC, FISV, ERTS
Type 4 Screen Additions: MO, TGT, AMD, LLY, PEP
Type 4 Screen Holdovers: AMAT, TYC, BC, DNA, GENZ, PG

Definitions

Short Rank
: The Erlanger Short Rank measures how intense the short selling is on a stock specific basis. The range of potential values is from 0% to 100%. We look at the short selling of each equity issue on a weighted basis going back five years (if there is that much data). We then determine where the current amount of short selling ranks relative to each issue's history of short selling. A value of 100% would indicate a new high amount of short selling for the past five years. A value of 0% would indicate a new low amount of short selling for the past five years. A value of 50% would indicate an average amount of short selling for the past five years. With this measure, we answer the question "How intense is the short selling for a stock?" in a way where we can compare one stock to another (statisticians call this normalization).

Technical Rank: The Erlanger Technical Rank is a very special statistic and it ranges from 10% to 100%. It is a nonlinear modeling of each issue's strength relative to the S&P 500. Many years ago we used advanced computational pattern recognition methods to allow the computer to interpret relative strength patterns in the same way a technical analyst would. We were able to do this, allowing the computer to score relative strength patterns on thousands of stocks at a moment's notice. Each issue's relative strength pattern falls into one of ten distinct patterns we have defined. The higher the Technical rank, the stronger is the pattern of relative strength.

Power Rank: The Erlanger Power Rank combines both the Short Rank and the Technical Rank. On a scale from 0% to 100%, the higher the Power Rank, the stronger a stock's relative strength pattern is and the greater the short selling is, constituting a potential for a short squeeze. The lower the Power Rank, the weaker the stock's relative price action is, and the fewer shorts (or greater amount of bulls), which is a potential for a long squeeze. Generally, most screens are sorted by the Power Rank.

Group Rank: Currently we track 139 industry groups. We calculate the Power Rank for each component issue for each group and average them to get the average Power Rank of the issues in each group. We sort from highest Power Rank to lowest, giving a rank of 1 to the highest and 139 to the lowest.

Options Rank: We combine various options series into one normalized index to get an overall picture of sentiment derived from options trading. We call it the Options Rank. Its purpose is to highlight the sentiment of equity options traders and at the same time reflect the momentum of sentiment. The Options Rank is on a 0% to 100% scale. One hundred percent (100%) reflects extreme dominance of put activity over call activity, and therefore represents an excess of bearish sentiment. Zero percent (0%) reflects extreme dominance of call activity over put activity, and represents an excess of bullish sentiment.

Hedge: For purposes of comparison, we calculate the hedge as the difference of the Short Squeeze screen weekly performance and the Long Squeeze screen weekly performance. In order to achieve the return of this comparison, leverage on each side of a hedged portfolio must be used.

No positions in stocks mentioned.

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.

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