European luxury stocks have underperformed the Eurostoxx this year, with slowing demand from China dampening sector growth. Short positions have surged across the sector, notably in Swatch, BOSS, Ferragamo, and American Sports, with some reaching squeeze risk levels.

European luxury goods have faced a challenging year, underperforming compared to the Eurostoxx.

Recent reports indicate a slowdown in demand from China, attributed to declining consumer confidence.

Almost all stocks in this sector have seen an increase in short positions recently.

Currently, there are four names with short positions greater than 10%: Swatch, BOSS, Ferragamo, and American Sports

Ferragamo is the only one that had a significant position at the beginning of the year, rising to 17%. The other stocks started with lower positions but ended up above 10%, with average short positions increasing from 3% to 13%.

The rise in short positions during the decline is indicative of a momentum strategy. Most of these stocks have declined simultaneously.

These names are approaching a squeeze risk score above 70, which is noteworthy. This would become a more pressing issue if the stocks were to rally. Currently,

Swatch has a squeeze risk score of 77.5, while BOSS stands at 62.5, with a short interest of float at 15%. Swatch is already at a level where a squeeze is possible.

If they were to rally, it could face squeeze risk; Ferragamo has similar metrics.

Both BOSS and Ferragamo experienced squeeze risk scores above 70 during previous rallies, but none have triggered a squeeze thus far.

A rally in the sector or the Eurostoxx could cause a squeeze on more names.

High short interest levels and underperformance in European luxury stocks signal elevated squeeze risks, particularly if the sector or Eurostoxx rally.

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