A massive short squeeze in Shake Shack is sending shares soaring

Wall Street loves to hate Shake Shack.

Shares of the burger chain have soared more than 35 percent in the last three months. Despite the rally, it's still one of the most heavily shorted stocks in the market. According to FactSet data, Shake Shack short interest comes in at 48 percent of its float, and that leaves Miller Tabak technician Matt Maley warning against its sizzling hot run.

"The stock did break above double top levels to 2017 highs of $40," Maley said Wednesday on CNBC's "Trading Nation." "A lot of that fuel has been short covering, I think it's going to pull back from here."

In other words, Shake Shack's rally is unsustainable, according to the technical analyst. Additionally, Maley points out that the stock is extremely overbought at current levels. When investors short stocks, they are betting that shares will fall. But when shares rise, those investors are often forced to cover their short bets, and that can send a stock soaring.

After an upgrade from Morgan Stanley, Shake Shack was up more than 6 percent Thursday morning. trading at $44.59.

However, Maley also emphasizes that the stock's break above $40, which happened late November, is overall positive on an intermediate-term basis. "If you do want to, buy it, but I would buy it on weakness rather than chase it up at these levels," he cautioned.

Chad Morganlander, a portfolio manager at Washington Crossing Advisors, is also cautious on Shake Shack, mentioning that there are other names in the fast casual restaurant space that would be more worth a buy.

"The problem with this company though is that same store sales have actually been declining year over year, so that's something of a concern," he said on "Trading Nation." "And it has a higher price point as opposed to McDonald's. The price point for a burger [at Shake Shack] is about $10, where McDonald's is roughly $3."

Shake Shack shares are up 17 percent this year.

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Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Sara Eisen

Sara Eisen joined CNBC in December 2013 as a correspondent, focusing on the global consumer. She is co-anchor of the 10AM ET hour of CNBC's "Squawk on the Street" (M-F, 9AM-11AM ET), broadcast from Post 9 at the New York Stock Exchange.

In March 2018, Eisen was named co-anchor of CNBC's "Power Lunch" (M-F, 1PM-3PM ET), which broadcasts from CNBC Global Headquarters in Englewood Cliffs, N.J.

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