Short Squeeze Alert: Chevron (CVX) stock is moving into the top short spot

Tesla (NASDAQ:TSLA) is officially out of the hot seat…or at least that way. This is what today’s news shows Chevron (NYSE:CVX), the oil and gas giant, has officially overtaken TSLA as the most shorted large-cap stock in the US market. Hazeltree, which aggregates data from 700 asset managers, reported that CVX stock has had more short bets than TSLA since April.

This is a stock that most companies don’t want to hold as it suggests that a large number of investors are becoming increasingly bearish. But given the trend in oil prices, this move is not entirely surprising.

Oil prices rose on the day but have traded lower in recent weeks. Last month, prices for the benchmark Brent crude fell from over $90 a barrel to just over $83 today.

Why short bets on CVX stock are piling up

To be clear: Chevron is no ordinary meme stock.

This is a widely used company with incredible liquidity. So when short sellers step in, as was the case with Tesla, that’s really bad news for the stock.

On the one hand, there’s a lot to like about Chevron. The company is known for its high free cash flow and income generation, a healthy dividend yield of 4.1%, and an extremely attractive valuation with a forward P/E ratio of 12.6. These factors haven’t changed, and in fact CVX stock is up nearly 8% year to date.

On the other hand, the question remains as to what will happen to oil prices. Many experts have been predicting a recession for a long time. This would lead to a drop in demand that would weigh on Chevron and its competitors.

But this short-term rise in interest rates just doesn’t make sense to me right now. Given its attractive valuation and year-to-date gains, I don’t agree with Chevron’s market.

At the time of publication, Chris MacDonald did not hold, directly or indirectly, any positions in the securities mentioned in this article. The opinions expressed in this article are those of the author and are subject to InvestorPlace.com’s publication policies.