The Surging Retail Stock Overdue for a Short-Squeeze

Overstock.com, Inc. (NASDAQ:OSTK) is having another huge day, with shares of the online retailer rising 8.2% to trade at $44.75, and earlier hit a 12-year high of $45.80. This is just more of the same from the equity, which has been on a breathtaking ascent since early August, when it was traded below $15. With a 14-day Relative Strength Index (RSI) of 76, OSTK is now overbought, but D.A. Davidson is calling for more upside with earnings due after the close next Wednesday, Nov. 1.

Specifically, the brokerage firm this morning boosted its price target to $57 from $36. This suggests extended upside of 27.4% from current levels. Given Overstock's post-earnings history, and a potential short-squeeze situation, such a move may not be as crazy as it seems.

For instance, the shares have moved higher in the session after earnings in seven straight quarters, including a nearly 7% jump last quarter, and a huge 19% surge after last November's release. Going back eight quarters, OSTK has averaged a single-day swing of 10%, and this time around the options market is pricing in a 7.1% move for next Thursday.

Meanwhile, data from Schaeffer's Senior Quantitative Analyst Rocky White suggests Overstock short sellers are facing huge losses. In fact, White's research points to a loss of over 96%, on average, for those shorting the security -- the most of any equity on his list. If the company again delivers strong quarterly results and the stock rallies, a mass exodus of short sellers could result in additional tailwinds.

A number of options traders are certainly expecting more upside. During the past 10 days, the December 40 and 50 calls saw the largest increase in open interest, and data points to buy-to-open at each, especially the 40 calls. Those buying positions here expect the shares to rally higher in the coming months.

It should also be noted that Overstock.com stock seems overdue for even more bullish analyst attention. That's because, amazingly, D.A. Davidson is currently the only brokerage firm covering the equity. It's hard to imagine yet another huge post-earnings move going unnoticed by this group, and positive attention could act as yet another upside catalyst.