Short squeezes can result in explosive upside moves. We saw it at the end of 2019 with Tesla (TSLA). Once the stock broke 400, it absolutely flew to the upside. One reason why was that breakout triggered buying from short sellers, who realized that their losses were unlimited as TSLA climbed higher and higher. Buying was actually encouraging more buying. I later wrote about Peloton (PTON), which we all know exploded higher and caused short sellers a lot of pain. Others featured included Ollie's Bargain Outlet Holdings (OLLI), Charter Communications (CHTR), Workhorse Group (WKHS) and, more recently, Gamestop (GME). All 5 of these short squeezes had one thing in common. They were all part of our Short Squeeze ChartList at EarningsBeats.com. We follow the most heavily shorted stocks.....and then wait.....and wait.....and wait. Many of the stocks on this ChartList are shorted for very good reason and they proceed to go lower. Just because a stock is heavily shorted does not mean that it's a great buy. It's quite the contrary. However, when shorts get it wrong, it's like exiting a movie theatre during a fire. It's a stampede with only one relief point - the EXIT.
I ran a scan today against our Short Squeeze ChartList, looking for stocks with heavier than usual volume. After all, we're looking to find high-volume stocks that are breaking out with huge short interest. Our Short Squeeze ChartList is home to the most heavily shorted stocks. So running this scan quickly identifies possible short squeeze candidates. Here's what was returned today from a scan that looked for companies on this ChartList that had already traded at least 75% of their daily volume just two hours into the trading day:
Only 4 stocks on our Short Squeeze ChartList met this 75% of average volume requirement AND are trading higher on the session. Of these 4, only JKS has actually exploded higher on this volume. (Note: JKS reported its quarterly earnings and crushed EPS estimates)
Let's look at the JKS chart:
Barring a big afternoon selloff, short sellers are going to have a big decision to make. Do they want to cut their losses now? If so, they must buy back shares to cover their borrowed short position. As more and more short sellers make this decision, the bigger the imbalance between buyers and sellers. Overwhelming demand (buying) is what triggers massive short squeezes.
We have a special event on Saturday morning at 11:00am ET to discuss our "Short Squeeze ChartList". If you'd like to look at real examples and potential future candidates, I'd love for you to join me. It's completely free, but you do need to be part of our EarningsBeats.com community. To be part of our community, it's as simple as joining our FREE EB Digest newsletter, which is published 3x per week. You won't need a credit card and you can unsubscribe at any time. CLICK HERE for more information regarding this webinar (and one other!). To become part of our EB.com community, sign up for the EB Digest HERE. We'll send out room instructions to our entire community on Saturday morning.
There's one more benefit from attending. We'll provide access to our entire Short Squeeze ChartList (72 companies in all) to everyone that attends. If you're a StockCharts.com member (Extra or Pro), you'll be able to download this ChartList directly into your account. If you're not, you can still view all of the 72 charts, but you won't be able to download them.
I hope you'll plan to join me!
Tom Bowley,
Chief Market Strategist, EarningsBeats.com
