Zacks.com featured expert Kevin Matras highlights: Essex Property Trust, Inc.,
Encore Capital Group, Inc., Manchester United plc, Eaton Vance Corp. and
Valassis Communications, Inc.
CHICAGO, Feb. 20, 2013
CHICAGO, Feb. 20, 2013 /PRNewswire/ -- Stocks in this week's article include:
Essex Property Trust, Inc. (NYSE: ESS), Encore Capital Group, Inc. (NASDAQ:
ECPG), Manchester United plc (NYSE: MANU), Eaton Vance Corp. (NYSE: EV) and
Valassis Communications, Inc. (NYSE: VCI). Kevin Matras looks at the 'short
ratio' as a market sentiment indicator and shows how to use it for finding
Screen of the Week written by Kevin Matras of Zacks Investment Research:
This week's Screen looks at a market sentiment indicator called the short
ratio to find new stock picks.
The short ratio is the number of shares sold short (short interest or bets
that the stock will go lower in price) divided by the average daily volume.
The higher the ratio, the longer it would take to buy back the 'sold'
(borrowed) shares. And in theory, the more short positions there are to cover,
the stronger the short covering rally would be.
Many people who use this indicator like to look for the number of "days to
cover" to be higher than 8-10 days. It's generally believed that a short ratio
of that size could prove difficult to cover and therefore trigger a strong
rally on any hint of an upswing. (My personal preference is to take that into
consideration, but also compare it to the industry's average ratio and the
stock's own historical ratio.)
And while I wouldn't recommend using just the short ratio as the 'be all to
end all' of screening items, I do think it can be a great tool for helping
define great opportunities.
Short Ratio and Uptrends
For stocks moving higher, try looking for historically high short ratios for
stocks up 20% or more (new uptrend) or that have just rallied past an
important moving average like the 50 or 200-day average. (Funds will often
pile in at those points. So a large short ratio could propel the market
significantly higher as huge buyers bid the market up while panicky shorts
chase it even higher just to get out.)
The screen I'm currently running focuses in on those kinds of companies:
stocks in solid uptrends with relatively large short ratios that could send
the stocks soaring if the shorts are forced to buy those shares back. The
parameters to this week's screen are:
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Disclosure: Officers, directors and/or employees of Zacks Investment Research
may own or have sold short securities and/or hold long and/or short positions
in options that are mentioned in this material. An affiliated investment
advisory firm may own or have sold short securities and/or hold long and/or
short positions in options that are mentioned in this material.
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