Johnson & Johnson’s rising short interest contrasts with positive stock sentiment ahead of earnings. Meanwhile, UnitedHealth shows contrarian indicators, and Walgreens’ high short interest suggests mixed results post-earnings.

JNJ (Johnson & Johnson)

• Historically, stock returns prior to earnings announcements have been predictive; however, this time the return is only up 1%, resulting in a minimal forecast increase.

• The short position in JNJ has shown a downward trend but recently increased by 8%. This is a significant movement, especially during earnings season. While long positions are optimistic about earnings, short positions have historically been inaccurate, suggesting that this recent uptick may serve as a contrary indicator. This could be influenced by hedging strategies or options activity.

• Considering the weak signal from the stock and the stronger signal from the short position, historical trends suggest that JNJ surprise positively.

Additionally, the short position could continue to rise following the announcement.

UNH (UnitedHealth Group)

• In the week leading up to the earnings report, both long and short positions have historically been inaccurate in predicting earnings direction.

• The stock is up 3%, which acts as a contrary indicator. Meanwhile, the short position has decreased by 5%, which has also historically served as a contrary indicator.

The model suggests a negative earnings surprise for UNH.

WBA (Walgreens Boots Alliance)

WBA requires special analysis due to its 22% movement during the last earnings report, while the average movement is only 5%. The model produces different outcomes depending on whether this data point is included.

An important observation is that the implied move in the options market is 13%, which is the midpoint between the average movement and the recent spike.

The short position as a percentage of float for WBA is currently 12%, indicating a bearish sentiment, and this metric has been rising throughout the year.

• Analyzing all data points, the stock shows an upward trend, suggesting a positive return. However, the increasing short position implies a bearish outlook, leading to a neutral net effect.

As earnings approach, JNJ’s rising short interest suggests a potential upside, while UNH shows contrarian signs of a negative surprise. WBA’s mixed signals reflect uncertainty due to its volatile history and high short interest.

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