CHICAGO, Oct. 11, 2013 /PRNewswire/ -- Stocks in this week's article include: Carter's (NYSE: CRI – Free Report), Chart Industries (NASDAQ: GTLS – Free Report), ResMed (NYSE: RMD – Free Report), Vistaprint (NASDAQ: VPRT – Free Report) and WhiteWave Foods (NYSE: WWAV – Free Report). Kevin Matras looks at the 'short ratio' as a market sentiment indicator and shows how to use it for finding winning stocks.
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:
For the rest of this Screen of the Week article please visit Zacks.com at: http://www.zacks.com/commentary/29354/
Sign up now for your free trial today and start picking better stocks immediately. And with the backtesting feature, you can test your ideas to see how you can improve your trading in both up markets and down markets. Don't wait for the market to get better before you decide to do better. Start learning how to be a better trader today: http://at.zacks.com/?id=111
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.
About Screen of the Week
Zacks.com created the first and best screening system on the web earning the distinction as the "#1 site for screening stocks" by Money Magazine. But powerful screening tools is just the start. That is why Zacks created the Screen of the Week to highlight profitable stock picking strategies that investors can actively use. Each week, Zacks Profit from the Pros free email newsletter shares a new screening strategy. Learn more about it here http://at.zacks.com/?id=112
Zacks.com is a property of Zacks Investment Research, Inc., which was formed in 1978. The later formation of the Zacks Rank, a proprietary stock picking system; continues to outperform the market by nearly a 3 to 1 margin. The best way to unlock the profitable stock recommendations and market insights of Zacks Investment Research is through our free daily email newsletter; Profit from the Pros. In short, it's your steady flow of Profitable ideas GUARANTEED to be worth your time! Click here for your free subscription to Profit from the Pros.
Follow us on Twitter: http://twitter.com/zacksresearch
Join us on Facebook: http://www.facebook.com/ZacksInvestmentResearch
Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.
Zacks.com provides investment resources and informs you of these resources, which you may choose to use in making your own investment decisions. Zacks is providing information on this resource to you subject to the Zacks "Terms and Conditions of Service" disclaimer. www.zacks.com/disclaimer.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit http://www.zacks.com/performance for information about the performance numbers displayed in this press release.
SOURCE Zacks Investment Research, Inc.