By now it should be no secret that under the New Centrally-Planned Normal, good is great, but worst is far greater. It is therefore no surprise that in the past year, some of the highest returning stocks have been the companies which have seen wave after wave of shorts come in, attempting to ride the underlying equity value to zero, only to see themselves scrambling to cover short squeezes, generated either due to the pull of borrow by an overeager shareholder (think SHLD), or due to bad news not being horrible enough, leading to short covering ramps (think AMZN at each and every worse earnings call, which however is never bad enough to finally trounc the last traces of the "bull story"). Which is why, as we have done on various occasions in the past, we have collated the most hated stocks in the less prominent but far more volatile Russell 2000 Index, where we have limited the universe to the 700 or so stocks with a market cap between $50 million and $1,000 billion, or those which tend to have aggressive moves up or down on modest volume (i.e., not widely owned). We have then sorted these in descending order of Short Interest as a % of Float. The results are presented below.
What is one supposed to do with this data? For the overly aggressive out there, and those who are tired of watching paint dry, one option is to create an equal-weighted basket of the 20 most hated names, and hope for the arrival of the one catalyst that forces a massive squeeze. No doubt one or more companies in this list will file for bankruptcy and end up without any value: after all they are shorted for a reason. Yet, all it takes is for one name of 20 to jump tenfold in order to offset the full wipe out of half the names in the basket.
Are we saying this will happen, or any one company will perform as suggested? Of course not: we are not Cramer. This is simply the math. And since fundamentals don't matter in a world where Austrian monetary theory rules (i.e., the only thing that matters is the amount of liquidity entering or leaving the market at any moment), taking advantage of people who still naively believe that there are traces of rationality and efficiency in a market that is broken beyond any slavage value and short the worst names out there, may be one of the few "strategies" that work, besides of course predicting with 100% accuracy what side of the bed Mario or Ben will wake up on.