“The combination of strong earnings, high short interest, and multiple technical triggers makes ROOT an interesting setup for potential upside.”
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With the market rocking and rolling, I’m starting to look at some more speculative setups, ones that offer huge upside while minimizing risk.
Today we’re zeroing in on a small-cap insurance play that’s been making waves after posting its first-ever profitable quarter.
I’m talking about Root Inc (NASDAQ: ROOT), and while the fundamental story is improving, it’s the technical setup that has my full attention.
Let’s dive into what I’m seeing.
ROOT is currently trading well off its 52-week highs of $118.15, which immediately catches my interest for potential mean reversion.
What’s even more intriguing is the stock’s high short interest of 20.3% with a tight float of under 8 million shares.
The technical picture is showing multiple compelling signals:
Multiple Timeframe Squeeze
Yesterday, we observed squeeze formations developing on both the 78-minute and 130-minute charts.
When we see these compression patterns align across different timeframes, it often precedes a significant price movement – much like a spring coiling tighter and tighter before release.
Inside Day Pattern
Thursday gave us an inside day formation, where the entire day’s trading range was contained within the previous day’s range. This type of price consolidation often precedes a decisive move.
Stacked EMAs
The Exponential Moving Averages are showing a beautiful alignment pattern. Picture a series of ascending steps, each providing support for the next potential move higher.
Short Squeeze Potential
With a remarkable 20.3% short interest and a tight float of under 8 million shares, ROOT has the ingredients for a potential short squeeze.
Fundamentals Check Out
While my focus remains primarily technical, the fundamental backdrop adds some interesting context:
- First-ever quarterly net income profitability
- 50% reduction in interest expenses
- Strong revenue growth at $305.7M vs $266.5M expected
- Expanding policy base and growing premium revenue
When you combine this with improving fundamentals and bullish technical signals, we could see shorts forced to cover their positions, potentially accelerating the upward movement.
Think of it like this – with such a small float, any significant buying pressure could force short sellers to scramble for shares, creating a domino effect of buying pressure.
Based on the technical setup and squeeze potential, I believe ROOT could make a run toward the $100 level.
While this might seem ambitious, we’ve seen similar setups in small-float stocks lead to explosive moves, especially when technical triggers align with high short interest.
Your Action Plan:
On Thursday, I initiated a position in ROOT during my Daily Profits Live Trading Room:
In the morning, I bought ROOT November 15 $85 calls at $4.40, and later added to the position at $4.60. My stop is set at $3.60, with a target of $6+.
I also bought deep-out-the-money $100 calls expiring on November 15.
These are what I call “lottery ticket” trades – high risk but with the potential for explosive returns.
While they don’t all work out, when they do, the returns can be substantial.
If you’d like to see more of these setups and learn how I trade them in real-time…
