Short squeezes have been the hottest catalyst in the market.
After a few weeks of stocks gapping up and fading — shorts got overconfident and over aggressive.
Now stocks are starting to rip back and the long-biased traders are back in control.
But shorts are gonna short…
And long-biased traders will keep jumping in to ride the momentum until every last short seller is dead and buried. (Figuratively speaking, of course.)
I’ve talked about how you can ride short-squeeze momentum a lot recently, so today I’m switching gears…
I’m giving you the criteria and reasons I think Nikola Corporation (NASDAQ: NKLA) could be the next massive short squeeze candidate.
And since it’s Friday — my favorite day for short squeezes — you’ll want to pay attention to this…
Building A Case For the Next Big Squeeze Candidate
Nikola Corporation (NASDAQ: NKLA) had a huge multi-month breakout yesterday.
But even before it made its move, I had a sneaking suspicion that it could make a move when I looked into it during premarket…
In my morning webinar, a member claimed there were no shares to short available at TradeZero — one the best brokers for borrowing shares to short.
I was shocked.
So I double-checked the information and sure enough, there was none.
Due to NKLA’s float size, there’s no reason for shares not to be available. I was confused.
It had me wondering if a big chat room of shorts borrowed and shorted all the shares…
It was definitely odd since shares were available to short at other brokers. And it got me thinking that maybe NKLA’s move wasn’t over…
Sure enough, when the market opened NKLA climbed higher and broke out.
NKLA chart: 1-day, 5-minute candle — courtesy of StocksToTrade.com
This move was interesting to me so I did some digging and built a case for this to be the next big potential short squeeze.…
Press Releases
NKLA has been pumping out press releases for weeks.
And we all know that news is one of the catalysts that can continue to bring in new buyers.
The demand is what pushes stock prices higher.
On July 13 the company announced an order for 50 of its hydrogen fuel cell electric vehicles.
A few days later NKLA announced a partnership to develop its Phoenix Hydrogen Hub (PHH) project.
And on July 31 the company announced an order for 10 battery-electric and three hydrogen fuel cell electric vehicles, with delivery of the first vehicles expected in August 2023.
See the list of all NKLA’s press releases dating back to early June here.
If NKLA continues to announce vehicle orders or expansion plans, the stock could react positively as it has in the past.
Hot Sector
NKLA is also in a hot sector.
Many traders might not think EV stocks are hot right now…
But with the rise of Tesla, Inc. (NASDAQ: TSLA) over the last few months and more pushes to develop the EV charging grid, a lot of EV stocks have spiked or run recently.
EVgo, Inc. (NASDAQ: EVGO) was an example yesterday. It was an earnings winner that spiked 22% at the open and 44% in total since announcing earnings after the bell on Wednesday.
And it held its gains and consolidated along VWAP all day — another strong signal for the sector…
EVGO chart: 1-day, 5-minute candle — courtesy of StocksToTrade.com
But back to NKLA … Like I said it also had a breakout yesterday which is a powerful momentum move to the upside.
But there’s something else about its chart…
Chart Pattern
NKLA has a long-term chart pattern that many supernova stocks have.
It was selling off for months before it started to turn around — it looked like it was all over for NKLA…
All it did for almost a year was go down. It sold off from a high of $9 down to 52 cents.
That’s when it started pumping out the press releases I mentioned earlier. And the stock started to curl upwards…
NKLA chart: 1-year, daily candle — courtesy of StocksToTrade.com
But short sellers can’t believe a stock can come back from that…
They believe the move is unbelievable. So they start guessing tops.
This brings me to my next observation…
Volume
Look at the volume NKLA trades when it has a big run to the upside…
The stock trades hundreds of millions of shares in a day — that makes its massive float of 530 million shares seem not that bad…
It’s getting close to float rotation on a massive scale.
The volume on the days of NKLA’s big runs means there are a lot of shares exchanging hands…
Then as the stock consolidates, volume dries up.
That doesn’t give short sellers with large positions the chance to exit their positions.
If they buy to cover when there’s low trading volume, their buy orders can actually influence the price and push it higher.
And that starts the cycle all over again of a breakout move and massive volume.
NKLA chart: 1-year, daily candle — courtesy of StocksToTrade.com
Yesterday’s move didn’t see quite as much volume traded…
That has me thinking there still could be more juice to squeeze out of this thing.
But we don’t anticipate moves — we react.
So my ideal plan would be to look for a morning dip and rip or a VWAP hold high of day break this afternoon.
Do you think NKLA has the potential to squeeze today?
Let me know by replying to this email.
And if you want to be part of my webinars where I give lessons and insights just like this in real time — see how you can be mentored by me live every trading day here.
Have a great day everyone. See you back here tomorrow.
Tim Bohen
Lead Trainer, StocksToTrade