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The stock market rally of riskier assets appears to have re-ignited the meme trade of betting on stocks with a high level of short interest. Whether or not it is actually institutional money or hedge funds behind the meme surge, the result has been a wave of high-volume share price jolts.
Following a week of dizzying share price jolts for Bed, Bath & Beyond (BBBY) as traders eyed the risk of bankruptcy for the retailer, the spotlight now turns to other stocks which may be crowded shorts subject to explosive moves up or down themselves.
Silvergate Capital (SI) tops the list with earnings right around the corner on January 17. Options trading implies a 20% swing for Silvergate after the report drops.
Carvana (CVNA) is also on the radar with more traders entering the crowded short trade as the auto retailer continues to struggle amid a weak used auto market.
Meanwhile, SmileDirectClub (SDC) saw a rally of 47% on Friday on huge volume that put plenty of pressure on shorts. In another rally potentially inspired by a short squeeze, Newegg Commerce (NEGG) jumped 41% on Friday
Some other favorite stocks of short traders include Beyond Meat (BYND), Beauty Health (SKIN), Vertex Energy (VTNR), Allogene Therapeutics (ALLO), Bed, Bath & Beyond (BBBY), Upstart Holdings (UPST), Marathon Digital (MARA), and Weber (WEBR).
Meme Hall-of-Famers were also in the mix, with GameStop (GME) rising 23% last week and AMC Entertainment (AMC) gaining 30%. The electric vehicle sector is also a battleground of longs vs. shorts. Arrival (ARVL), QuantumScape (QS), EVgo (EVGO), Blink Charging (BLNK) and Sono Group (SEV) are some of the stocks seeing outsized swings over the last week.
Of interest, UBS warned that the consumer staples sector is seeing some unusual crowded short momentum on the expectation that valuations could come back down as investors move off their defensive positioning. While the overall level of short interest is still low on Estee Lauder (EL), Kimberly-Clark (KMB), Newell Brands (NWL), Spectrum Brands (SPB), Ingredion (INGR) and Yeti Holdings (YETI), the momentum is on the side of shorts, which could add volatility to the upcoming earnings reports.
It is tough to find short targets with a high overall Seeking Alpha Quant Rating, but names like Blue Apron (APRN), Myomo (MYO), and Novavax (NVAX) stand out with A+ valuation grades and +10% levels of short interest outstanding on them.
What to watch: The Roundhill MEME ETF (NYSEARCA:MEME) is a fund based on potential surges in stocks with viral potential. The ETF is off to a strong start in 2023 with a 15% gain and may not be done running higher in the near term.