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Friday, July 27, 2012

Short Squezze ?

Props to Molecool of http://evilspeculator.com and Fearless


Trading a Short Squeeze:

How to scan/enter a long in anticipation of a short squeeze:
  • Look for stocks that have high short interest, or a days to cover ratio greater than 10 for not well established companies. The number is 5 or greater for established (financially proven) companies.
  • Look for stocks whose short interests build up while prices stagnate and lurks just under resistance.
  • Look for earnings release dates and match that to the short interest as earnings will be used as an excuse to squeeze.
  • The instrument is trading above the 20 day SMA on a slightly above average volume prior to the event.
  • If the instrument trades below the 20 day SMA prior to the event, but the volume is slightly higher than the average daily volume, you want to see the price trending higher into the event and above the daily acceleration line.

Bollinger band method is based on three fundamental principles:
  1. Once an instrument reaches the Bollinger band, it has the potential to push the band limit given the right trending conditions;
  2. Once an instrument starts pushing the band, the trend may be strong enough to cause a profitable squeeze quickly or a sizeable gain over time; and
  3. Should the instrument’s price becomes embedded in the Bollinger band, stop looking for reversals and let the market forces slaughter players on the other side of your trade for you.
 And than this:
          I Bergamot:
I posted this question for Fearless in a previous thread. Trying to get an concept of short squeeze thru my thick skull, spent two nights on scanning for stocks that fit Fearless criteria, but still... you know ...not sure.
Maybe Mole or Skynard or somebody can help to check my reasoning. Any comments are welcome. Thanks
"Still trying to work out picture and user name. But I have an urgent question re "squeeze candidates".
8.7 short ratio, within spitting distance from 52week and 3year high, right
between 20 and 50 ma. Earnings on Aug 15. PF target 14 (almost 50% up from here).
Than I look at VALE and don't see anything of a kind.
Respect your opinion alot and would appreciate a reply. Thanks"
Don't over complicate it, mate. The simple process of a short squeeze is based on the expectations of traders who think that it could not possibly push any higher. But often it can - for instance if an important resistance cluster gets taken out (overnight or via a headline jump) and the resulting pain starts a snowball effect.
I used to be a sub at shortsqueeze.com but did not find much edge in their subscriber rankings. But their free service is of value, which is why I don't have a problem mentioning it here.
BTW for a good in depth treatment on what drives a short squeeze point your browser here:

Remember I mentioned that you do not know what price is the right price to sell a squeeze candidate? With a stock close to its 52 week high, it can easily squeeze higher, but you'll need the upper Bollinger band and the 5 and 20 SMA as your guide and stops. With a beat down stock like VALE, you KNOW the retrace target(s) and can more safely set limit sell orders.
Also with financially sound companies, you may buy and hold near bottom prices if it's so beat down like VALE. You see, ALL major bottoms are immediately followed by strong short squeezes. With VALE, there is an opportunity to buy and hold this one for longer term trend trades and earn its dividends in the mean time. Hopefully this helps.

Great Story


Nine Financiers

Legend has it that in 1923, a meeting of America's most powerful men took place at the Edgewater Beach Hotel in Chicago.  Attending the meeting were the following nine financiers and power brokers:
the president of America’s largest steel company,
the president of America’s largest utility company,
the president of America’s largest gas company,
the president of the New York Stock Exchange,
the president of the Bank of International Settlements,
the nation’s greatest wheat speculator,
the nation’s greatest bear and speculator on Wall Street,
the head of the world’s greatest monopoly
a member of President Harding’s cabinet.
It was said to have been both a celebration of their success as well as an opportunity to plan their future exploits and dominance.  These were the captains of their respective industries and some of the most successful businessmen of the era.
But how did things turn out for these distinguished gentlemen?  Within 25 years, all of these great men had met a horrific end to their careers or their lives:
The president of the largest steel company,Charles Schwab, died a bankrupt man; the president of the largest utility company, Samuel Insull, died penniless; the president of the largest gas company, Howard Hobson, suffered a mental breakdown, ending up in an insane asylum; the president of the New York Stock Exchange, Richard Whitney, had just been released from prison; the bank president, Leon Fraser, had taken his own life; the wheat speculator, Arthur Cutten, died penniless; the head of the world’s greatest monopoly, Ivar Krueger the "match king", also had taken his life; and the member of President Harding’s cabinet, Albert Fall, had just been given a pardon from prison so that he could die at home.
And as for the Wall Street Bear, Jesse Lauriston Livermore, famous speculator in the stock and commodities markets, his end is perhaps the most tragic of all.  A week after Thanksgiving in 1940, Jesse walked into the Sherry-Netherland Hotel in New York, had two drinks at the bar while scribbling something in his notebook, then proceeded to the cloak room where he sat on a stool and shot himself in the head.  He was 62 and left behind $5 million, down from the $100 million fortune he had amassed just ten years earlier.
And the note he had scribbled?
“My dear Nina: Can’t help it. Things have been bad with me. I am tired of fighting. Can’t carry on any longer. This is the only way out. I am unworthy of your love. I am a failure. I am truly sorry, but this is the only way out for me. Love Laurie”

There are three major lessons we can take from this parable:
1.  Those who are on top now are not certain to finish in that position and are not guaranteed everlasting success or happiness.
2.  Be careful whom you choose to idolize.
3.  The life of a professional speculator is an unpleasant one, filled with highs and lows but ultimately unsatisfying and, in all probability, mentally ruinous.  Look no further than the example of history's greatest speculator for proof of this.