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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.

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