Playing on Short Interest

It's a slow bleed higher as we wait to hear from Fed chief Janet Yellen this week. She wasn't greeted kindly in January, but the market seems to be trying to warm up to her today. Even before we hear from her, we will get more earnings reports tonight and tomorrow morning. I'm sticking with what worked last week and grabbing some upside on a few high-short-interest names, a couple of which even have good-looking charts. Of course, the charts don't matter much in the face of an earnings report beyond the ability to find resistance and support levels, so take bullish charts with a big grain of salt into earnings.

The best-looking charts are Rackspace Hosting (RAX), Proto Labs (PRLB) and Nuance Communications (NUAN), in that order. I entered RAX Friday, but I like the February $41-$46 call spread with buying an extra $41 call for every four call spreads. The upside looks to be in the $46-$48 range. If RAX disappoints, it could be headed to the mid $30s, which makes owning the stock very difficult. The short interest is running in the mid-teens....321 more words left in this article. To read them, just click below and try Real Money FREE for 14 days.

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