Investing

5 Heavily Shorted Stocks That are Skyrocketing

Eric Bleeker

Published: July 21, 2024 12:06 pm

Last Updated: July 23, 2024 8:49 am

On July 11th, comments from Federal Reserve Chairman Jerome Powell caused investors to raise their expectations for rate cuts in 2024 rapidly. This sparked a historic rally in small cap stocks, with the Russell 2000 seeing its greatest-ever outperformance versus the S&P 500 across the next five trading days.

As part of that rally, heavily shorted stocks saw their shares skyrocket. What are some of the most heavily-shorted stocks in the market and how much did the post-July 11th rally boost their share prices?

Key Points in this Article

• With expectations for rate cuts soaring in recent weeks, many heavily shorted stocks saw large gains.
• These gains faded at the end of the week as investors moved to reduce risk. However, the reaction in the days following the Fed’s July 11th comments show what can happen to stocks that are heavily shorted if more funding pours into small caps in the second half of 2024.
• If you’re looking for a megatrend with massive potential, make sure to grab a complimentary copy of our “The Next NVIDIA” report. The report includes a complete industry map of AI investments that includes many small caps.

Heavily Shorted Stocks to Watch

Here are some key points from the discussion between 24/7 Wall St. Analysts Eric Bleeker and Austin Smtih.

• What investors are buying in the market is changing in a hurry. We’ve seen a massive stock market rally take hold since June 11th, but the winners are different names than investors are used to. 
• This all started with comments from the Fed. The market is now pricing in 3 rate cuts this year. 
• Which, rate cuts are generally bullish for stocks, but the reaction we’ve seen has been anything but uniform. 
• The Nasdaq – which has performed tremendously over the past 18 months – has struggled relatively. Stocks like NVIDIA have been down for days while other parts of the market soared. 
• Meanwhile, the Russell 2000, which has lagged other indexes has performed very well. The same could be said for the Dow Jones Industrial Average. 
• Getting to numbers, the Russell has outperformed the Nasdaq-100 by 12% and the S&P 500 by 10% from July 11th through July 16th. That’s a record. It’s the greatest small cap outperformance in a week. Ever. 
• So, we have a lot of small cap stocks seeing a record amount of dollar inflows. 
• Now, at the tail end of this week, we saw a general “risk off” on stocks so some of these gains have been given back. However, the reaction in the days following the Fed’s comments might show what a “coiled spring” some of these heavily shorted stocks are if the small cap rally resumes.
• Let’s go over a few of these names with their performance in the week before July 17th (when this video was filmed) noted.
• First Supernova Energy (NYSE: NOVA). That stock is up 21% in the past week. It started the week with 32% of outstanding shares sold short. 
• Next up is Upstart (Nasdaq: UPST). Upstart’s pitch is around using AI for lending, so you can imagine it gets a double benefit of low rates leading to more lending AND a short squeeze. 30% of its shares were sold short. It was up 30% between July 11th and 16th. 
• Plug Power (Nasdaq: PLUG) – 27% short and up 28%. 
• Applied Optoelectronics (Nasdaq: AAOI) – 24% short and up 38% 
• Sunrun (Nasdaq: RUN) – 24% short and up 29%
• What are the key themes we’re seeing? First, a lot of stocks in alternative energy and EVs are seeing some of the strongest growth. 
• Once again, many of these stocks gave back quite a bit of these gains on Wednesday through Friday.
• However, if money keeps flowing into small cap funds, this heavy short interest will likely cause more periods of outsized gains.
• It’s worth noting too that interest rates dropping is a particular boon to industries like alternative energy and EV where many companies are unprofitable and trying to extend their “runway” in cash reserves to hit profitability. Lower interest rates lead to lower borrowing costs.

Transcript:

Eric, what investors are buying in the market is changing in a hurry.

So we’ve seen a massive stock market rally take hold since about June 11th.

But the winners are very different names than what investors are used to.

I mean, the story of the last 12 to 18 months has very much been the hyperscalers, the mega cap tech, the Mag7, NVIDIA, Supermicro, basically any tech company or anybody that was even adjacently related to AI.

And all large mega cap companies.

But this has also been pushing up some stocks that are heavily shorted.

So can you give investors some names to watch and background on why heavily shorted stocks are suddenly running?

And I just want to note that you actually earlier this month, on July 4th, put a company AAOI on investors radar that was heavily shorted at the time, and it’s since went on to rally 50% or more.

So looking at heavily shorted stocks and looking at this investor rotating appetite from mega caps to smaller companies, It could be a perfect storm for some of these stocks to absolutely skyrocket.

So what’s going on out there?

Yeah, without question, it has the right ingredients for some really incredible rallies that we’ve been seeing.

So the background on this is it all started with comments from the Fed.

The market is now pricing in three rate cuts this year, which rate cuts are generally bullish for stocks, but the reaction we’ve seen has been anything but uniform across different types of stock.

The NASDAQ, it’s performed tremendously across the 18 months. It’s been struggling relative.

Stocks like Nvidia have been down on days.

Other parts of the market have been soaring.

Meanwhile, the Russell 2000, which has lagged other indexes across the past 18 months, it’s performed very well, historically well, you could say.

The same could be said for the Dow Jones Industrial Average.

Putting some numbers to this, the Russell has outperformed the NASDAQ 100 by 12% and the S&P by 10% across the past week at the close of Tuesday.

That’s a record.

It’s the greatest small cap outperformance in a week ever.

So what we’re looking at is a lot of inflows to funds, housing, small caps, and that is pushing their share prices up.

So the next level you could look at is if there’s a rotation into small caps, what are some of the most heavily shorted small caps?

Because as you said, that’s creating a perfect storm.

You’ve got huge sector rotation and then you’ve got heavily shorted stocks.

So let’s look at some names.

And Eric, speaking of perfect storms, I just want to draw attention really quickly to the report that you wrote called The Next NVIDIA, which all of our viewers today can access for free at video.nextnvidia.com.

We’re all about looking for these convergences of events where element A, B, and C all combine at once to send shares absolutely skyrocketing.

So you put together this report called The Next NVIDIA, looking at some of the trends in AI, look at some of the key players, that we’re looking to benefit over the next 12 months from a convergence of mega trends.

So before we get into these shorted stocks, I just wanted to make sure that investors knew that report was available and it’s totally free.

And in it, you named your top three AI stocks that are going to benefit from the next super cycle build out.

Yeah, I mean, you know, we’ve got, I’m holding the report right here.

You can see it’s 38 pages.

It has a complete industry map of AI investments.

You’re going to understand how all these companies fit together.

As you noted, we’ve got three of our top plays for what we see as the next growth cycle in AI.

It’s a trend taking data centers from thousands of these AI chips together to a million.

There are specific companies that are going to benefit the most from it.

We’ve provided our research there.

So again, as you were saying, at 24-7 Wall Street, We’re trying to get investors ahead of the most promising trends.

We’re talking about short sell stocks today.

Another of the most promising trends is artificial intelligence.

You can see the URL.

Where is it?

It’s right here.

It’s video.nextnvidia.com.

Once again, completely complimentary.

Just put that in your browser.

Make sure not to miss it today because it will be available for a limited time.

So let’s talk about the stocks that are heavily shorted.

I would say Supernova Energy, that’s ticker symbol NOVA.

That stock is up about 21% through the close of Tuesday in the past week.

It has 32% of shares outstanding sold short.

Another stock to examine would be Upstart.

That’s ticker symbol UPST.

Upstart’s pitch has always been around using AI for lending.

So you can imagine it kind of gets a double benefit of rates begin to decline that you’re going to see more lending with lower rates.

And in addition to that, it’s also getting a short squeeze because 30% of its shares were sold short.

As of the close on Tuesday, it had been up 30% in the past week.

I’m going to quickly run through a few other names that have been heavily shorted that I’ve seen strong gains.

Plugged Power, 27% short with 28% gains.

Applied Opto Electronics, that’s the one that you mentioned at the start, Austin.

24% short had been up 38% five trading days, Sunrun 24% short and up 29%.

So what are some of the key themes we’re seeing?

First, a lot of stocks in alternative energy and the AUVs are seeing some of the strongest price growth in this environment.

You know, there’s a lot of money flowing into small cap indexes and resultingly these stocks.

But again, they’re starting to run harder because they’re heavily shorted.

And with Upstart, another factor with these names, especially with alternative energy and the EV space is if you’re a cash flow negative company or you’re relying on funding, lower interest rates are going to help extend your runway and get you to profitability.

So some of the names relying on funding are going to run harder.

I should note, these names are all fairly speculative, but again, If money keeps flowing into small caps, I would look at names on this list to keep outperforming.