In this week’s Monday Morning outlook, my colleague Rocky White created a list of retail stocks that have historically done well the week after Black Friday and the rest of the year.
Using those two lists as a starting point, I wanted to narrow them down a little further. The retail group has been very strong, gaining about 20% year-to-date. I wanted to get rid of some of the laggards from this group, so I eliminated all stocks that weren’t above their 200-day moving average.
Whittling down a little further, I looked for those stocks with a short interest ratio of 3 or higher. This is simply a calculation of how many days it would take short sellers to cover their positions based on average daily stock volume. Remember, the higher the ratio, the more potential there is for an extended short-covering rally.
Finally, I zeroed in on stocks that had buy ratings of 50% or less. With this criteria, I have a list of stocks that have outperformed the market historically, targeted by short sellers and under loved by analysts. These are all the ingredients of stocks that tend to “climb the wall of worry.”