Screening Stocks for Short Selling

Have you been watching as your stock portfolio tanks into oblivion? Is it at all possible to make money in this market when everyone seems to be losing value, laying off employees, downsizing operations, and declaring bankruptcy?

One of the biggest keys to financial success is finding a way to make a buck under even the worst of circumstances. One strategy that many people have tried is short selling and just like conventional stock trading, there are certainly techniques and tactics to maximizing your profits through shorting. Short Screen, which serves as the subject of today’s review, is designed to be a robust tool with short sellers in mind.

Sell High and Then Buy Low

Let me start out by saying that I am no stock market expert, but I am somewhat familiar with what short selling is all about. Under normal circumstances, you’d probably be on the lookout for stocks on the rise. You buy them while they’re still low and then you sell them when they’re high. That’s how you turn a profit.

Short selling still adheres to the “buy low, sell high” mentality, but it reverses the order of the steps. What you do is “sell” stocks (that you do not own) at today’s higher price with the promise that you’ll “buy” them at a future date, ideally at a lower price. Instead of looking for stock prices on the rise, you look for stock prices that are destined to plummet. You look for companies about to declare bankruptcy.

Screening Stocks for Short Selling

What is Short Screen?

Offering tools and ideas for short sellers, Short Screen is a website that will help you find the stocks that you should be shorting and the ones that you should be avoiding. The main information is based on the Altman Z-score model, which describes how “distressed” a stock is.

Short Screen offers three main areas: message boards, screener, and calculator.

The Free Message Boards for Everyone

Screening Stocks for Short Selling

The only real area of the site that is readily available to members and non-members alike is the message board. This is where your fellow stock traders can post their tips on which stocks could be on the rise and which are about to fall.

One of the more recent examples is the post for Domino’s Pizza. You can adjust the stock chart for a number of different time periods and premium members can rate the “tip” on a five-star scale. If the average rating drops below two stars (with an adequate number of total votes), the post gets removed from the site.

Screener: Who’s About to Go Under?

Screening Stocks for Short Selling

Possibly the most valuable tool on Short Screen is the Screener. Here, you can find the fifty most distress stocks based on the Altman Z-Score or Z”-Score. For maximum profitability, you can also adjust for the minimum share price.

In the screenshot above, Verisign looks like it could be in for a world of hurt. The computed score is -21.6585. This scoring model is said to be about 72% accurate in predicting bankruptcy up to two years in advance and about 80-90% accurate for a one-year timeframe.

By using the screener, you can determine some of the best candidate for your short selling endeavors. This sure beats trying to work out the score on your own for the thousands of different stocks available on the market.

Calculator: Researching Specific Stocks

Screening Stocks for Short Selling

While the screener can point you toward (at least) 50 candidates for your short sales, you may be interested in the Z-Score for a specific company. I used the Z-Score Calculator on Short Screen for Motorola (MOT) and got a score of 2.0348.

This is in the positive and it looks like the stock has been on a steady rise for the last few months. I guess the introduction of the Motorola DROID with Verizon is helping those guys out, so it’s probably not a good idea to short sell Motorola at this point.

Making Money from the Losers

You have many options when it comes to stock trading research tools and it seems that short selling utility can be a valued addition to the mix. The calculator is handy, but I think it’s the screener that could really help you turn an imminent loser into a winner for you.

A premium member’s account is $14 a month, but you can recoup these costs through your short selling profits and through the Short Screen affiliate program. This pays a 15% recurring referral commission and the people you refer get a 5% discount on the membership fee.