Rebound Candidates: Oversold Stocks With Short Covering

Looking for rebound candidates? If so, the following list may be an interesting starting point for your search.

Short covering
We started by considering the value of short-seller data. Short-selling is an investment technique that allows an investor to make money when the value of a stock falls. Short-sellers, however, lose money when the share price rises.

Because short-selling requires borrowing, an individual or institution must meet several requirements (including background checks) to engage in short-selling. Thus, in general, short-sellers are more sophisticated than the average investor.

If short-sellers are reducing, or covering, their positions on stock, it indicates these sophisticated investors think the stock has more upside than downside to price in.

To find stocks that short-sellers are feeling more optimistic about, we looked for companies with a short decrease, as a percentage of share float, month over month.

Technically oversold
Relative Strength Index, or RSI, measures the speed and change of price movements. It is often used as a momentum indicator, with a reading that ranges from 0 to 100.

In general, RSI(14) above 70 signals a stock is overbought (i.e., prices might soon decline), and below 30 signals a stock is oversold (i.e., prices might soon rebound).

For this list, we screened stocks for those that are also technically oversold, with a Relative Strength Index (RSI) reading below 40. Again, this means that according to price and volume data, the stock may be ready for a rebound.

The list
We ran a screen on stocks with market caps above $300 million for those meeting both short-covering and oversold requirements as detailed above.

The technical indicators suggest this pessimism has been excessive, and short-sellers appear to think these stocks are ready for a price correction, do you agree? (Click here to access free, interactive tools to analyze these ideas.)

1. Columbia Sportswear Company: Engages in the design, development, sourcing, marketing, and distribution of outdoor apparel, footwear, accessories, and equipment in the United States, Latin America, the Asia Pacific, Europe, the Middle East, Africa, and Canada. Market cap of $1.51B. RSI (14) at 29.03. Shares shorted have decreased from 1.93M to 1.41M month-over-month, a change representing 4.38% of the company's 11.88M share float.

2. EXCO Resources (NYS: XCO) : Engages in the exploration, exploitation, development, and production of onshore North American oil and natural gas properties with a focus on shale resource plays. Market cap of $2.18B. RSI (14) at 39.4. Shares shorted have decreased from 17.27M to 12.53M month-over-month, a change representing 2.77% of the company's 171.01M share float.

3. Vera Bradley: Engages in the design, production, marketing, and retail of functional accessories for women under the Vera Bradley brand. Market cap of $1.28B. RSI (14) at 34.71. Shares shorted have decreased from 10.30M to 9.86M month-over-month, a change representing 2.23% of the company's 19.75M share float.

4. Invacare (NYS: IVC) : Designs, manufactures, and distributes medical equipment and supplies for the non-acute care environment, including the home health care, retail, and extended care markets. Market cap of $513.52M. RSI (14) at 37.19. Shares shorted have decreased from 2.51M to 1.94M month-over-month, a change representing 1.97% of the company's 28.90M share float.

5. AutoNation (NYS: AN) : Operates as an automotive retailer in the United States. Market cap of $4.65B. RSI (14) at 38.09. Shares shorted have decreased from 8.38M to 7.69M month-over-month, a change representing 1.54% of the company's 44.69M share float.

6. REGAL ENTERTAINMENT GROUP: Operates a theatre circuit in the United States. Market cap of $1.82B. RSI (14) at 30.87. Shares shorted have decreased from 16.48M to 15.22M month-over-month, a change representing 1.48% of the company's 85.08M share float.

7. LogMeIn: Provides on-demand, remote-connectivity solutions to small and medium-sized businesses, information technology (IT) service providers, and consumers in the United States and internationally. Market cap of $916.73M. RSI (14) at 39.7. Shares shorted have decreased from 2.80M to 2.49M month-over-month, a change representing 1.45% of the company's 21.39M share float.

8. The Children: Operates as a children's specialty apparel retailer in North America. Market cap of $1.32B. RSI (14) at 37.86. Shares shorted have decreased from 5.88M to 5.60M month-over-month, a change representing 1.37% of the company's 20.43M share float.

9. Unisys (NYS: UIS) : Operates as an information technology (IT) company worldwide. Market cap of $856.40M. RSI (14) at 34.12. Shares shorted have decreased from 3.83M to 3.30M month-over-month, a change representing 1.32% of the company's 40.21M share float.

10. Stonemor Partners (NAS: STON) : Engages in the ownership and operation of cemeteries in the United States. Market cap of $438.73M. RSI (14) at 28.96. Shares shorted have decreased from 391.88K to 170.97K month-over-month, a change representing 1.18% of the company's 18.72M share float.

Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the stocks mentioned above. Analyst ratings sourced from Zacks Investment Research.

Kapitall's Rebecca Lipman does not own any of the shares mentioned above.Short data sourced from Yahoo! Finance, all other data from Finviz

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