Here’s my take on Wayfair (W) — a heavily shorted stock that’s making the bears scream in agony. (May 18, 2017)
We are going to look at Wayfair ( NYSE:W ) today and here is why: The stock broke out, solid earnings, broke to a new all-time here last week and kept moving higher. This is what is happening: Half of the float is short. It takes almost 14 days of trading, where only the shorts are buying, for all the shorts to cover. This is definitely a short squeeze. But also, Andrew Left who is a noted short seller was on CNBC, really pretty arrogant, but if you are right you are not arrogant you are just confident. Anyway, he was just saying he is shorting the stock he doesn’t care what it is, if the stock goes higher he doesn’t care. Ultimately, Amazon ( NASDAQ:AMZN ) is basically doing his work for him.
These guys are specialty retailers selling furniture online, and that is something that Amazon ( NASDAQ:AMZN ) is going to go into, so these guys are way over priced, yada, yada, yada. That my very well be true, he may ultimately be proven correct just like Bill Ackman may ultimately be proven correct on Herbalife ( NYSE:HLF ), but not so much now. And so we can capitalize on this, knowing the dynamics of the stock, and let Andrew Left figure it out all by himself. Again, he might be right. But I also know this, Wall Street, money managers, when they know somebody’s position, especially if it is a short position, they love to bet against them. Because they know that this guy is a built-in buyer; at some level he is going to capitulate, he is going to have to. And so that could be part of the dynamic why this is staying up.
I would just say, this is actually kind of a clear-cut trade. This is the box, between 65.00 and 60.00. It is so close to 65.00 that I wouldn’t be buying the stock until and unless it breaks out here. But if you are buying it now, or if you wait and buy it then, at least keep a stop a little bit below $60.00. If you can to THAT then you can play along with the big guys and hope for higher prices here as the stock just kind of takes off. On a weekly chart it is a pretty bullish pattern with this kind of volume. Certainly overbought, but we know this, that is why we are putting a stop there.