Carvana, Wayfair Among Analyst's Top Retail Short Squeeze Candidates This Holiday Season

One of the most powerful tradable market events is a short squeeze, so traders are always on the lookout for the next short squeeze candidate. S3 Partners analyst Ihor Dusaniwsky just released a list of potential short squeeze stocks within the retail sector based on their high borrow rates and large mark-to-market losses for short sellers.

A stock borrow fee is the percentage of a stock's value that brokers charge short sellers to borrow the stock. If the supply of shares to borrow gets low, borrow fees tend to rise.

When a stock’s borrow fees spike, it applies pressure to short sellers to choose between closing out their positions or letting fees eat into any potential gains.

So far in 2020, Dusaniwsky said short sellers have taken a beating betting against retail stocks, generating year-to-date mark-to-market losses of more than $30 billion in the sector. Amazon.com, Inc. AMZN has been the worst short bet among retail stocks in 2020, costing short sellers more than $5.2 billion in losses. Short sellers have also taken a $3.6 billion hit betting against Pinduoduo Inc PDD this year.

“With retail stocks seeing a strong upsurge in stock prices as the potential for successful Covid vaccines may end or minimize lockdowns in early 2021 we should see the surge in short selling wane and short covering become more widespread in some sub-industries,” Dusaniwsky said.

Related Link: Airline Stock Short Sellers Deboard Ahead Of Coronavirus Vaccine Approval

Short Squeeze Candidates: Here’s a look at eight retail stocks Dusaniwsky said are the biggest short squeeze candidates heading into the holiday shopping season:

• Carvana Co CVNA
• Wayfair Inc W
• Restoration Hardware Holdings, Inc RH
• Expedia Group Inc EXPE
• Bed Bath & Beyond Inc. BBBY
• Macy's Inc M
• Nordstrom, Inc. JWN
• GameStop Corp. GME

Benzinga’s Take: Short squeezes are extremely unpredictable, and a rise in short seller losses is not a definitive indication that a squeeze is coming. However, the combination of high short interest and rising short seller losses makes these eight stocks worthy of being at the top of any short squeeze watchlist.