I wanted to figure out which among the most shorted stocks have the highest potential to create a spontaneous squeeze. In other words, a squeeze that will occur as a result of the stock price going up quite simply as a result of the performance of the company.
So, to clarify: the better the point total of the company, the larger is its potential to see a spike in stock price based on performance alone, to the point that the price surge will create a squeeze.
To create the list I went with the most shorted stocks with a market cap above 2 bil. I didn't want to include smaller companies because then volatility and manipulation become hard to calculate.
Then I used several different parameters to include in the point total, including: short percentage, revenue, earnings, target price, float, insider and institutional ownership, groundbreaking news generation, current/ytd/52 high and low prices, etc…
I then proceeded to give each parameter value. One was total value, meaning how relevant is that parameter to the issue at hand: potential stock rise. The other was relative value, meaning, how much better is one company doing in comparison to all the others in the list. That is how values were awarded to reach a total, that I named NSQP (natural squeeze potential).
Generally speaking, I liked the results, meaning, I think the list makes sense, although I haven't gone through it one by one to evaluate how accurate it seems to be. But I think it does shed light on what companies are least likely to create their own squeeze and which companies have strong squeeze potential. In fact, I think anyone shorting the top five in this list is de-facto insane.
Comments, questions and bashing are welcome. I have a position in Sorrento (that came in first), and that position was what got me thinking about creating the list to begin with. I was curious to know how SRNE would fare compared to other shorted companies. I absolutely do not think I manipulated the list, because when I was doing it, I had no way of knowing what the final result would be. Too many numbers….
Here's the list and scores:
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