Sears Has Scary Short Squeeze Potential

Sears Holdings Corp SHLD shares are up 4.2 percent on Thursday after the company secured yet another funding lifeline to continue its ongoing turnaround strategy. Sears reported it has received a secured standby letter of credit facility, which will provide $200 million–300 million in credit to the struggling retailer.

Life Line Means Little For Near-Term Viability

There’s no question that Sears has a long way to go before the company becomes a viable long-term investment again, but the stock is so heavily shorted that each quarter’s earnings report has the potential to trigger a nuclear short squeeze.

Potential Short Squeeze

According to shortsqueeze.com, Sears currently has a staggering short percent of float of 68.9 percent. The stock has more than 15.1 million shares held short with 11.2 days to cover.

As Sears’ stock has tanked another 58.5 percent in 2016, short sellers have relentlessly piled on. Sears’ short interest is up 17.1 percent in 2016.

Digital Age Concerns

Many shorts are expecting Sears to never be competitive in the digital age and see piling on even more debt as doing little to change that outcome. While a large-scale turnaround seems unlikely at this point, huge short squeezes in stocks with such large short positions can be triggered at any time, often spontaneously.

No matter how bleak the Sears story seems to be, the stock certainly makes a dangerous short sell.