The Perfect Recipe for Trading Short Squeezes

The era of the short squeeze continues. Particularly with low-float overseas stocks. They’re the sketchiest of the sketchy.

Whether you’re “stop hunting” short squeezes, or looking for high-probability Money Monday opportunities, trading is all about timing. Get my new algo’s…

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We’ve been in this short squeeze era for quite some time, but I think it’s going to heat up. Let me list the reasons and why it’s the perfect recipe for trading short squeezes.

The Big Picture

We are, in my opinion, in the greatest bull market in history. Now, time will tell. It could all end tomorrow. That’s why we have stop losses and trade plans.

But look at what the market has done going back to the 2024 election. It’s all as predicted. I don’t have a crystal ball, but I knew that with AI and the policy decisions the goal was to get us into a bull market. And it happened.

So, we have the overall market headwinds. A rising tide lifts all boats.

Couple that with rate cuts. I know we’ve had a couple of Fed meetings with no rate cuts. But once this war stuff settles down, rate cuts will come. They can’t cut during a war because it’s not responsible.

Then add the upcoming changes to the PDT rule. That’s going to bring money and volatility into low-priced stocks.

Finally, add what I call panic points, where short sellers either panic buy or get bought in by their broker…

And It all adds up to the perfect recipe for even more short squeezes:

• Panic points
• The changing markets
• Irrational exuberance
• And the flood of money and inexperienced traders about to come into the market.

How Often Do Short Squeezes Happen?

Now, a lot of people think that short squeezes are a rare anomaly, something that only happens every now and then.

But short sellers get greedy. There are chat rooms full of newbies who put their stops at the most obvious level. So when the forced cover happens, the squeeze is on.

Short squeezes sometimes happen every day. Three to four times a week is an average. But that has been increasing. And in early June, when the PDT rule goes, it could get sizzlin’ hot.

My Take

There’s a trade opportunity there for long-biased traders. And it can be one of the most “layup” trades out there.

For example, see what happened with WORK Medical Technology Group LTD (NASDAQ: WOK) below. Congratulations to anyone who shorted the move into the market open.

After that, as a former short seller it felt like your hand was in the meat grinder.

Watchlist

WOK spiked on news of an “AI-driven healthcare” collaboration with another sketchy Chinese company. Early shorts cleaned up. But then WOK started grinding up, grinding up, and grinding up more.

Smart longs were hunting stops. Most shorts are trading with too much margin, so they get hit with forced covers, a forced buy in with a market order. And that spikes the stock. We love it. Keep an eye out for these and focus on the panic points – often the previous high of day like WOK above.

On My Radar

• Game Stopped
• Why Apple is an AI picks and shovels play
• What the end of the PDT rule means for traders
• My Sunday Market Brief got taken down. Someone saw my EDC and asked me to show it. Evidently you can’t show guns on livestreams. That said, you can join me LIVE every Sunday at 7 PM ET for a complete stock market breakdown
• What’s my EDC? The Shadow Systems MR920, spec’d out by Sgt Chez
• Finally, this made it very difficult to get any work done the past couple of days: