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.

CLICK HERE TO BECOME A SHORT SCREEN PREMIUM MEMBER


33 thoughts on “Screening Stocks for Short Selling”

  1. Trader Mom says:

    I don’t see this kind of posts very often on your site. I am a full time day trader who has a long/short ratio of 0.63 for this year, which means I go short more than long.

    I am a part time blogger learning from John Chow. I am a big fan of your site.

    1. Lee Ka Hoong says:

      Sounds great! Do you have any successful story being a full time trader? 🙂

      I’ve only little experience in trading.

      Regards,
      Lee

      1. Benjamin Cip says:

        I never experienced trading… I believe you always have to be on the phone, and internet to check the last change and sell, buy, sell, buy etc… that’s just my biasis.

        1. Typhoon says:

          Ya, it’s tough thing if you are into trading but Hiring a Share Broker could ease your job little bit.

  2. Donny Gamble says:

    This is a great concept, but this is a very saturated market and it will be hard to compete with some of the more established businesses

  3. yerongtian says:

    i could not believe getting so good comment position.

    1. You came third, that is commendable. I’ve been 1st myself, and have thought I was 1st, but I wasn’t…..

      I don’t see the sponsored badge, so I take this is a bona-fide honest review, John? (And yes, I’ve read your disclaimer….hahahahaah)

      1. Typhoon says:

        Great you said that otherwise John would have surely replied by saying to read his disclaimer. I just saw him doing the same in the previous post where a person raised a same question.

  4. I am in stock market and yeah, if you expert the short selling you should an expert in whole stock market. It make you can gain profit even in fall market.

    1. Typhoon says:

      In short selling there is little bit risk and profit is kind of limited or small. But when you go for long term, you get too see more profit and also loss.

  5. videostar says:

    The concept is really great and difficult for understanding.Market is a very changeable structure and it is not easy to see its tendences in a right time.

    1. Typhoon says:

      Ya, I agree..There is lot of risk involved in share trading. It’s just like gambling…Currently most of the world markets are unstable and see huge up and downs..

      But Here in India, the two stock exchanges viz. Sensex n Nifty are performing a little bit better than other world markets according to many financial experts.

  6. Jay @marketfolly says:

    While this post is admirable for enlightening readers to strategies in financial markets they might not be aware of, it fails to highlight the obstacles and risks. In order to short you have to be approved for a margin account with your broker, different from the normal cash account people
    have. Margin involves risk as you are paying interest on borrowed money. Additionally, short selling as a whole is risky because you can lose an unlimited amount of money because a stock can go up an unlimited amount theoretically. When you buy, the most you lose is what you invested if the stock goes to zero.

    Shorting is a useful strategy to incorporate, especially for hedging, but you have to really know what you’re doing. On MarketFolly.com, we track hedge funds that go long (buy) and short stocks as well in their strategy. Check it out if you’re into investing.

    @marketfolly

    1. David Pinsen says:

      Additionally, short selling as a whole is risky because you can lose an unlimited amount of money because a stock can go up an unlimited amount theoretically.

      Jay,

      There is a way to limit your downside, if you want to bet against stocks: you can buy puts on them instead of shorting them. As with shorting, you’ll profit if the stock drops, but in the case of buying puts, your maximum loss is limited to what you paid for the put. You can use Shortscreen to screen for candidates to buy puts on as well as to short.

      I personally don’t limit myself to buying puts, because I believe there are often better short selling candidates among stocks that aren’t big enough to have options traded on them. There is of course a risk that I will lose money on some trades, but by limiting myself to shorting stocks that a highly accurate model predicts are headed for bankruptcy, I believe the odds are on my side.

      In general though, you are right that there are risks associated with shorting and it’s important to be educated about them. We’ve aimed to be clear about those risks on our site.

      You also touch on an important point with your mention of hedging and long-short portfolios, which are strategies often used by professional investors to manage risk. My personal portfolio includes both long and short positions for the same reason. I created Shortscreen to help find potential short candidates for my own portfolio.

  7. MTF says:

    There is a new movie called “Stock Shock” that follows several Sirius XM investors through their experience of watching their stock go from almost ten dollars a share—down to 5 cents/share. “Stock Shock” suggests this might be due to “naked short selling” and other market manipulation by high rollers on Wall Street. It gives a good review of how our stock markets are engineered. Amazon.com has it and stockshockmovie.com

    1. Typhoon says:

      Thanks for letting us about the movie. Will be downloading it now.

  8. A bit off your usual topics, John? Not really sure if that will help a lot of your readers, I personally am a blogger and internet marketer and have no interest whatsoever in stocks ;-( Lets hope the next blog posts are a bit more “blogger orientated”. SY
    PS Yes, I noticed that the post written by Michael, but it is Johns blog

  9. This a real good concept, though i prefer waiting for dividends on my investments. I have been pretty good at short trading. Recently I bought 30 shares of citigroup for $0.98 and I sold it just after he announced a profit with my dividends. Actually a newspaper in india had written Citigroups stock would start to rally once they announce a profit . I did loose some money at the first two weeks, but later on i sold it at $3 a share.

    1. Michael says:

      That is not short selling. Short selling would be if you borrowed the stock in order to sell it.

      Borrow @ $0.98 and Sell at $0.98
      Buy back @ $3
      Lose $2.02 per share sold.

  10. fas says:

    Not a safe way to play the markets.

    1. Typhoon says:

      Stock Market is like a Gamble, there is always a risk involved on your investment.You never know when the market will go 1000 point and up 1000 point. You need to track each and every details of it to make some profit out of it.

  11. Michael says:

    John, you better watch what you let be posted here. Selling stocks short is a good way to also LOSE A LOT of money. Including more money than you invest. All in the name of an affiliate commission of probably $2-4 per month per subscriber.

    It does not matter if a company is going to zero, the markets can be irrational longer than you can remain solvent. Especially when it comes to small capitalization stocks.

    I know you like to say, “The money is in the list, the money is in the list”. To which I agree, but I believe the money is in your relationship with the people who allow you to continuously communicate with them. As the list controller, you should feel a responsibility to treat them like gold.

    Which includes shielding your audience from dangerous ideas like this. Without proper knowledge, this can be more dangerous than accruing gambling debts. It would certainly include not exposing people to this kind of dangerous ideas in exchange for compensation.

    Not to mention the potentially dangerous exposure you give to yourself from various governmental agencies for providing investment advice without appropriate licensing. Which of course, would only come crashing down on you if people lose money. Considering the exposure of your blog I could probably guarantee that eventually you will be exposed to personal risk of governmental seizure of your assets.

    I hope you enjoy your 30 pieces of silver.

    1. David Pinsen says:

      Michael,

      Shortscreen.com does not offer investment advice; it offers the calculator and screener tools and the message board described above. For more details, please see the site itself, including the text on the home page that begins with this sentence,

      Our Calculator and Screener tools are not meant to replace the services that your professional, licensed investment counselor provides.

      JohnChow.com is not currently an affiliate of shortscreen.com.

      Although there are risks involved in short selling, it’s important to note, as a previous commenter alluded to above, that, for knowledgeable investors, adding short selling (or buying puts) can reduce the overall risk of your portfolio.

      For example, although it is risky to own (i.e., to be long) one stock in a particular industry, and it is risky to short one stock in the same industry, it may be less risky to do both at the same time. As Investopedia notes, this strategy, called a pairs trade, is often used by professional investors to hedge against sector and overall market risk.

      For more on this general concept, see, for example, this essay by Ken Hawkins: Make Your Portfolio Safer With Risky Investments.

  12. Lee Ka Hoong says:

    Investing in trading market is a risky way to make fast money, you could either win or lose in short period. I used to invest in trading market long time ago, ended up I stopped it because I lost all the money I won, so it was back to 0. 😉

    1. Typhoon says:

      Great to know lee that you tried investing in Stock markets and haven’t loss anything…I will be starting investing in it after I become 18 yrs..Till then I will have to see and learn how my father n brother make profit from Stock Market.

  13. Kevin Pasco says:

    This sounds really cool actually. I really want to get into trading on the stock market or forex market or whatever but I’m an absolute and total noob. If only I could learn how…

  14. Buzzlord says:

    If you want to learn how to short sell, check out Timothy Sykes’ blog. Best strategy I’ve ever seen.

    1. Typhoon says:

      Timothy Sykes? Well I haven’t listened about him ever but will see his blog as you are suggesting it.

  15. EarningStep says:

    well pretty nice software to handle our online selling. but i don’t think i need it right now

  16. David Pinsen says:

    For those of you who may be interested in a specific example of shorting: two months ago I shorted a stock that I initially found using the screener described above. Today I covered that short position for a 27% profit. I went into more details on that trade on my blog, if you’d like to read about it there.

    1. Typhoon says:

      Thanks for it..Will gonna read it in few minutes.

  17. Dean Saliba says:

    As someone who knows nothing about stocks (would I buy shares in Millwall that are valued at about £0.01 each if I knew about stocks?) I found this post very helpful. 🙂

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