3SOF

Hi JSINTEXAS,
These are the things I look at. I don't subscribe to the service. Instead, I run a screen and then check my findings on Shortsqueeze.com. But for me, it looks like the current short interest is increasing and the Short Squeeze Rank is hugely negative. I'm not sure how the ranking works. I'm backing into the assumption that a high negative number = big short. When you look up like OSTK, the rank is in the -700s ... and that's a well known short. If you look at MSFT, there is no rank. That's how I backed into that ranking. BUT ... with all that said, I'm willing to defer to SIR_JOKE.  I'm sure he knows more about this than me... since he's been right all along. An increase in shorting when the stock is so low seems dangerous, to me, so I'm confused as to why the short interest would be increasing. Perhaps others are more gusty than me when it comes to shorting. If I'm not using that shortsqueeze site the right way - I sure hope someone sets me strait ... and fast!!!!! Thanks for your help.

AVNR  $ 2.86 
Shares Short 11,716,346
Shares Short - Prior 10,757,276 
Short % of Float 37.77 %
Short % Increase / Decrease 8.92 %
Days to Cover (Short Ratio) 19.4 
Squeeze Ranking™ -563 
Total Shares - Float 31,020,000 
Total Shares - Outstanding 31,732,836 

samantha and jsintexas,

As David said eariler, high short interest doesn't necessarily mean that it will help the stock to go up, particularly if the chart is bearish.

"In a Bear Market, it is right to be bearish," so the shorts have it right.

Let's take TZOO (chart below), for example.  It was a favorite of the shorts, like Samantha's OSTK example.  Very high short interest in TZOO.

As the stock fell from $110, it would seem that the high short interest eventually would produce a "short squeeze," which means that the stock starts to raly and rally and rally, forcing the shorts to BUY in order to cover their short position.  That "buying to cover" on the part of the shorts drives the stock even higher, because now both Bulls are buying, and Bears also are buying because they are forced to become buyers,  in order to cover the shares that they sold short.

In TZOO, the stock was bearish, and the shorts were right.  The shorts weren't forced to cover because the stock just kept going lower and lower and lower, to about $16.

In the next post, I'll show you how the shorts finally got squeezed in TZOO.  Hang on...

This is a candlevolume chart.  The width expresses volume, so you can get an idea of how horrific this short squeeze was.

TZOO bottomed in October, 2005, and by April, 2006, it was working on a Bullish pattern formation.  It closed on April 17 at 19.98.  The next session, it gapped up out of the Bullish pattern on HUGE volume, and closed at 28.59, for a 43% gain that day.

"The Squeeze was on" right there!

Shorts were in an awful position, and if they didin't cover that day, look what happened to them!  TZOO "dragged the shorts higher," to $52 in a very short time.  Anyone who shorted at $20, for example, would have a loss in excess of 150% at the $52.

That's the type of thing Sir Joke meant by "Mother of all short squeezes."  Any move like that would qualify.

In general, in order for high short interest to be of much help to those long, the stock needs to do something bullish, like form the bullish pattern on this chart.  Then when it breaks out like this, its murderous on the shorts.  A lot of them will get margin calls, and have no choice but to cover.

I would suggest viewing high short interest in the context of the chart.  If the chart is bearish, high short interest isn't likely to mean as much as it would if the chart looked more bullish, like AVNR did back when Sir Joke thought that there was a chance of a big Short Squeeze.

Now that the stock has crashed, the squeeze possibility is off.  Yes, shorts will do some covering and probably already have (remember that the squeeze data that you have is a month old), but you also have Bulls selling here, because the chart is bearish.

Hope that helps some.

OK ... that's AWESOME!!!!! I totally get it now. That candle volume chart rocks! So in addition to finding stocks with a high short interest, I need the additional criteria of 1) Find stocks that started pretty high and have, 2) HUGE volume to the upside that 3)breaks a bearish pattern. Without those, all I've managed to do is screen for stocks that are dribbling down... which seems about right. Dang it!

Thanks for taking the time to put together such a great post. 3SOF should put this in their knowledge database. The explanation/graphics/annotation are wonderful. If I could applaud you I would ... but I haven't gotten my buttons yet... They should at least give newbies (I was a newbie yesterday ) the applaud button...

Yes, I totally agree.  Thank you once again Melf, as always your analysis is incredible. 
Since we are on the AVNR board, what is your analysis of this chart.  I have no idea now to interpret a chart after a large gap.

Quote from: SamanthaStephens on November 14, 2006, 01:38:48 PM
1) Find stocks that started pretty high and have,

Samantha,

Yes, you want to play stock that look healthy, regardless of whether or not a short squeeze ever becomes a factor.  In other words, you don't want to play stocks that are in a bearish trend, especially ones that have recently broken to the downside.  It takes awhile, sometimes a very long while, for a broken stock to build a base (like TZOO did from October, 2005 to April, 2006) then break out to the upside again.  Sometimes, it takes years.

Quote
2) HUGE volume to the upside that

That's what you'd like to see after you buy.  

For example, when TZOO broke out from $20, and rallied 43% in one day, you don't want to chase that.  It "could be" a false breakout, and come right back down, like it did  just recently (chart below).

Quote
3)breaks a bearish pattern.

You mean breaks out of a BULLISH pattern.    I knew what you meant.

Again, you don't want to "chase" a stock if its already has run a lot higher.  It would be ideal to catch them "as they breakout," or close to it, but you've really got to be prepared, and be watching closely.

Quote
Without those, all I've managed to do is screen for stocks that are dribbling down... which seems about right. Dang it!

Right.  If they're trickling down in a bearish trend, leave those alone.  There's a reason that the short interest is so high: the stock is BEARISH, and the shorts have it right, shorting.  Sometimes, news will come out, and those bearish stocks will race higher, but that's generally uncommon.

If you like to scan for high short interest, stick with those stocks that have at least decent charts.

Good luck, Samantha, and welcome to 3SOF!

Quote from: bmarc4211 on November 14, 2006, 01:49:22 PM
Yes, I totally agree. Thank you once again Melf, as always your analysis is incredible.
Since we are on the AVNR board, what is your analysis of this chart. I have no idea now to interpret a chart after a large gap.

bmarc,

AVNR is a broken stock.  Generally, when a break like this occurs, as I just said to Samantha, it takes awhile for it to recover.  I'd avoid buying stocks like this.  They're tempting.  They "look cheap," but "cheap can get a lot cheaper."  Or, stay cheap for a long time.

Remember that "the trend is your friend."  Buying a stock in this situation is making a play against a very strong downtrend.  It's bette (and much easier)r to buy stocks that already are in a bullish trend.

WOW!  Lots of great information.  I think I have a good idea.  I will "play" with this strategy for a while with play money and see if I get the hang of it.  In the mean time, I may be stuck with AVNR.   

AVANIR Pharmaceuticals Invites Investors to Listen to the Lazard Capital Markets 3rd Annual Life Sciences Conference Webcast
   
San Diego, Calif., November 15, 2006 -- Avanir Pharmaceuticals (NASDAQ: AVNR) will be presenting at Lazard Capital Markets 3rd Annual Life Sciences Conference on Tuesday, November 28, 2006 at 8:30 a.m. ET in New York, New York.  Avanir's Senior Vice President of Sales and Marketing, Keith Katkin, will be presenting at the investor conference.

The presentation will be available via a live webcast accessible through Avanir's corporate website at www.avanir.com.  To access the webcast, log on to Avanir's site fifteen minutes prior to the presentation to register and download any necessary audio software.  An archive of the presentation will be available for 90 days following the event. 

AVANIR Announces it has been Selected for Addition to the NASDAQ Biotechnology Index
   
San Diego, Calif., November 16, 2006 -- Avanir Pharmaceuticals (NASDAQ: AVNR) announced today that the Company has been selected for addition to the NASDAQ Biotechnology Index, which will be effective at the market's opening on Monday, November 20, 2006. 

I know there is not nearly the short interest since it spiraled down, but there still is a significant amount.  Do you think this news (and bullish activivity) will cause the shorts to cover therefore fueling the bullish activity?

I tell you from expericnce.  That this stock will likely be dead for at least 3 months.  I used to play these huge bio tech/drug stock drops.  I would end up O.K after a year

It may have some up days and  who knows it may have found a bottom but who knows...you may have a DOVP on your hands where it will gap down agaiN and become a penny stock

Still a strong bullish run this morning in PM.   

If this thing ever moves, I'm going to sell calls and see if I can nickel and dime my way out of the hole I'm in...

Samantha, we are both in about the same amount.  Let's see how it does next week.  Hopefully, it won't trickle back down!   

I hear you on that one. My setup on this was "absolutely brilliant". Ever have one of those?? And as I'm explaining the method behind my madness to my broker, so he'll let me do vertical spreads ... I said, "The only thing that can make this evil plan go sideways is if the company goes out of business tomorrow...If they go out of business in 2 months, I'll already be even so who cares." That... was on 10/24. OK ... so I know it's not that bad, if they're adding it to the Biotech index. But still! And it sounds like there is a pipeline. But man this stings.

When I was looking at the option volatility it was so high ... maybe I should have read "too high" and stayed away...

There is always next week...