“Turn those machines back on!”
Mortimer Duke was in a fury when he screamed these words near the end of the 1983 film, Trading Places, as his brother lay on the floor suffering what appeared to be a heart attack.
Why was he so enraged? He was the victim of one of the best-known short squeezes in history.
Every time I watch that movie, I find myself yelling at the TV screen. Because Eddie Murphy and Louis Winthrope III’s characters, like most people, didn’t know that you can actually use a short-squeeze to your advantage.
You get the angle here, yes?
Short squeezes follow the simple rules of supply and demand. They occur when there is a lack of supply and an excess of demand for a stock, and it typically causes a fast and aggressive increase in the share price.
A short squeeze happens when short sellers – those who are bearish on a stock – are forced to “cover” their losing positions on a stock. This leads to an unusually high increase in buying volume, driving the stock price up.
Typically, a short squeeze is triggered when a stock’s price has rallied to a point where short sellers begin to feel the pressure of margin calls against their accounts. Sometimes it’s even simpler than that, and short sellers decide to simply cut their losses and get out as the stock moves against them.
In an ironic twist, “getting out” is done by buying shares of the stock that they were betting against by holding a short position. Even more ironic, many times, the stock is trading with increased volume during these short squeezes.
This means that the short sellers must fight to get the stock as it accelerates higher – just like the trader fighting his way into the pits in Trading Places.
It all ends up with a stock typically making an unusually fast move higher…
A move that generates big profits for those of us that can find the short squeeze before it happens.
Today, I’m going to show you how to find these short squeezes – plus, five stocks about to hit their own short squeeze rally – so that you can be on the receiving end of those profits…