The recent volatility in the market should be a friendly sign for short sellers as they continue to bet on some extended downside moves. Unfortunately, technical support and a seemingly endless stream of buyers looking to buy dips have helped most stocks avoid the breakdowns that would finally pay off for the persistent short selling crowd.
Click to Enlarge However, bad news for the short sellers is good news for any investors monitoring the market for short squeeze trades.
A short squeeze happens when a highly shorted stock (one that short sellers have bet heavily against) continues to move higher. Since higher prices generate losses for a short seller, they eventually get “squeezed” into closing their position when a stock remains strong. The grand irony is that when they close their shorts they have to buy the stock, which only adds to its strength and helps those that were betting against the shorts.
The accompanying displays the top 20 short squeeze candidates from the S&P 500. Read on as we look at three candidates we like in particular.