One of my current holdings, $DDS, is a pretty good example of how I seek to find and push an edge in the market. The retailer has a huge short position, and a relatively low float to boot. As an example, $SKS, which is also a retailer, has a slightly lower market cap than $DDS, yet has nearly 100 million more shares outstanding. Regarding the short position, $DDS has a sizable one, with 26%.
These facts, in and of themselves, are not enough to go long $DDS just for the helluva it. In fact, during downtrends, a heavily shorted low floater would actually be a great place to get smashed up if you were long, as the snowball would be taking you along for the ride downhill. Instead, what you are looking for is a situation where the odds have tilted away from the numerous shorts in the name, and the stock is healthy from a technical perspective.
It is only when that latter scenario presents itself that you will want to become aggressive. Remember, aggression is great, but it is selective aggression that gets the money over the long run. In the case of $DDS, we now have a situation where the stock is technically sound. Based on the improved price action and volume pattern in the name, I can now point to the low float and high short position as aggravating factors to charge the shorts of being guilty in their complacency.
Regardless of the outcome, my thesis for this trade is that I have an edge over the shorts who are stubbornly denying the improvements in the stock. After spiking up on heavy volume over two weeks ago, the stock has flagged out. Today, the stock is showing signs of commencing a secondary breakout. The orderly price action tells me that the shorts in this name have yet to reach their maximum pain threshold.
Therefore, I will continue to push my edge via a full-sized long position.
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Great analysis, dude
nice play man