Stocks: The most squeezable shorts in the market, according to an analyst

S3 Partners Head of Predictive Analytics Ihor Dusaniwsky joins Yahoo Finance Live to discuss trading trends, the most squeezable short stocks, investor sentiment, and the outlook for markets.

Video Transcript

- Amid growing market uncertainty, new research shows a wide variety in crowded, long and short stocks among active investors. Joining us now, we've got Ihor Dusaniwsky who is the Head of Predictive Analytics at S3 Partners. Ihor, always a pleasure to speak with you and get some of your insights here.

I mean the big question that many investors may have out there is what they should be looking for in companies that are perhaps the most vulnerable here in either side of the trade.

IHOR DUSANIWSKY: Sure. Holt, thanks for having me. What we saw was a ton of deleveraging in the active investors, hedge funds, and such in 2022. 2023, we're seeing that there's more leveraging, more asset accumulation both on the long and short side by hedge funds.

The big names, Microsoft, Apple, Tesla, are getting the brunt of the dollars. But there's a lot of names that are crowded that really have to watch out for because you might have moves in and out that really can affect stock prices.

- Well, and let's-- I want to skip to what you're deeming the most squeezable shorts, Ihor. Because I got to say, that was the most intriguing part of the research that you sent us. First of all, what makes a short particularly squeezable?

IHOR DUSANIWSKY: Bottom line, if you're losing money in a trade, you can get squeezed out of the trade. If you're making money in a crowded stock, you're going to stay in the negative. It really is-- you get the tap on a shoulder if you start pulling in red numbers and you start having losses. So these names that are crowded and are losing money.

- So is it as simple as looking at some of the companies that have either been part of the meme or Reddit retail trade in the past or even at companies that have had precipitous declines over the course of 2022? Or is there something else that you would be looking for under the water?

IHOR DUSANIWSKY: Well, meme socks help because define a squeezable stock because they're tighter, they have a larger percentage of their short interest that are shorted. Their trading volume goes up and down a lot. But really, I'm looking at losses. You know, like I said, no one gets out of a profitable trade. You see something like LUCID has a big move in their past couple of months. That's a squeezable stock.

You know shorts are bleeding on this name. AMC, same thing. Especially with the new ape shares that are possibly getting into play. There's a lot of [INAUDIBLE] sitting around and causing shorts to double think their positions.

- And what then tends to trigger that short squeeze? Is it, in some cases, maybe a news event that sends the stock higher? Is it more sort of a market momentum situation? All the above? What ends up happening?

IHOR DUSANIWSKY: Sure, I mean market momentum plays in both the long and short side. That's become a new piece of the puzzle in the market now. Before everyone's a valued fundamental investor, and you kind of said, oh, is this company profitable? I'm going to buy it.

Now you've got to watch out that, hey, this might be a profitable company. The street hates it, I lost money. So we're looking at both sides. And our new map product is looking at the crowded longs and crowded shorts and squeezable shorts and king of telling people, hey, watch out for these names. Because there's a volatility in prices in these crowded names.

- And Ihor, what's also interesting to me is there's so much overlap between the largest active longs and the largest shorts that you're looking at. Microsoft is on both of those lists. Apple is on both of those lists. Tesla is on both of those lists. So I mean, is it just a function of them being very actively traded, or what's going on there?

IHOR DUSANIWSKY: You know, there's kind of a market issue here that there are less stocks, especially less stocks in mega and large cap names where the hedge funds who have a lot more money need to invest their money into. So I'm not going to invest if I have a $15 billion hedge fund, I'm not going to take a $10 million position in a micro-cap name. I don't need to manage 1,000 stocks in my portfolio.

What I need to manage is as a handful of names that I can control and do a lot of risk management on. So what I'm doing is investing in larger names. And if you're investing in larger names, you are going to invest in market leaders. So you've got your Apples, Teslas, Microsoft, NVIDIAs, Visa, and so on and as the most held long and short. So really the scary thing is you've got guys on both sides of the market. So when you have market news, one side wins, one side loses, you start seeing action buying, selling, buying to cover, short selling, and really just makes the stock prices on some of these names have these one day volatilities that really could scare the hell out of some investors.

- Ihor, some of the names that have had the most volatility this year are names that still touch crypto. When you think about the landscape there, and even recently there's been some data that's emerged about the number of crypto whales that has gotten back to pre-pandemic levels. With all that considered in the volatility in crypto prices, what would you be watching for with crypto stocks and equity market names?

IHOR DUSANIWSKY: Sure, I mean, you've got the investing in a crypto coin is one way to look at the market for cryptocurrencies and blockchain. But a lot of people just want to can't do that or don't want to do that. So you look at some of the underlying stocks, the microstrategies that have an innate or square that have a lot of exposure to these cryptocurrencies. And that's an easier way to either buy or sell cryptocurrency instead of having to have a wallet.

- Ihor, it is indeed. Thanks so much for being here. Always good to catch up with you. Ihor Dusaniwsky, out of Predictive Analytics at S3 Partners. Talk to you soon, Ihor. Thanks.

IHOR DUSANIWSKY: Great, thank you.