Wall Street’s next short squeeze could be in this fast food inventory, trader says

The inventory of Jack in the Box could quickly dwell as much as its identify.

Rising short curiosity in shares of the West Coast-based fast-food chain seems to be setting the fill up for a short squeeze, Danielle Shay, director of choices at Simpler Trading, instructed CNBC’s “Trading Nation” on Friday.

“I like Jack in the Box here, but for a short-term options trade,” Shay mentioned.

Though the inventory shouldn’t be far off its all-time highs, which might often preclude Shay from shopping for in, she made an exception on account of the weird exercise. Jack in the Box at the moment has 9.2% short curiosity, in accordance with FactSet.

“With something like this that has short interest, it does have the potential for a short squeeze and it has earnings coming up,” Shay mentioned. “For that reason, I do like to trade shorter-dated calls in the earnings series. That way, I can take advantage of just the momentum going into the earnings report and the rise in [implied volatility].”

For traders looking for a longer-term commerce in the area, Shay prompt the inventory of McDonald’s.

“If you look at a weekly chart of McDonald’s, it has been consolidating for quite some time. I do believe that that consolidation is going to break out to the upside. I’m targeting $240,” she mentioned. “It’s a little bit more of a long-term trade, so, you could sell put credit spreads on a regular basis [or] buy long calls 90-120 days out.”

McDonald’s shares ended buying and selling down lower than half of 1% at $213.90 on Friday.

“It’s going to take a while for restaurants that depend on indoor dining,” Shay mentioned. “People are going to be concerned about going. They’re not able to open up at full capacity. … For me personally, I would rather focus on the fast-food chains that their model already is specifically focused on drive-thru.”

Limited-service eating places are a greater guess than their full-service counterparts proper now, Piper Sandler’s Craig Johnson agreed.

“That’s where you’re starting to see some of the same-store sales comps really showing to be positive,” he mentioned in the identical “Trading Nation” interview, pointing to a chart of Chipotle Mexican Grill.

“This has been a long-term winner. It’s a name that we’ve owned in our model portfolio for some time and we still think it should be bought,” Johnson mentioned, noting that the inventory is above its 50 and 200-day shifting averages, in an upward channel and displaying robust efficiency relative to the S&P 500.

“This stock looks like it still has more room to run,” he mentioned. Chipotle ended buying and selling down 1% on Friday.

Johnson’s second decide was the inventory of Chili’s mum or dad Brinker International.

“On a weekly chart looking back a handful of years, you’ll see that you’ve finally reversed a downtrend off of those ’14 highs and now we’re breaking out to new highs,” he mentioned.

Brinker’s efficiency can be strengthening relative to the S&P, “providing confirmation to us that there is something positive happening here,” Johnson mentioned. Brinker shares closed about half of 1% decrease on Friday.

“It looks like a lot of these restaurants are looking in really good technical shape for another leg higher,” Johnson mentioned.

New York City eating places reopened for indoor eating at 25% capability on Friday.


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