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Trading short squeezes can be fun and the upside potential is huge. A short squeeze occurs when a poorly performing stock builds up a large percentage of traders holding the stock short. When short sellers expect stock to keep falling, they sell the stock by borrowing it from their broker, and then buy it back later for a cheaper price. A squeeze is triggered when the stock suddenly starts to rally and these short sellers have to buy back early to cover losses, which squeezes (increases) demand for the stock and can accelerate the stock’s rise in price over the near term.

Traders can make a killing if they go long a short squeeze, but keep in mind that these stocks are held short for a reason. Keep your positions small and make sure you understand the risks of trading against the trend before you enter a trade like this. Here are five stocks we are watching for potential moves in the very near term.

Coinstar, Inc. (NASDAQ: CSTR) operates the popular Redbox kiosks that have been trouble for traditional video rental companies like Blockbuster. This company currently has a short float ratio of 24.1%, which means that 24% of CSTR stock is held short. If the market for CSTR does rally and a short squeeze occurs, we are targeting resistance of $50 a share as a short-term target.

Blue Nile, Inc. (NASDAQ: NILE) operates as an online retailer of diamonds and fine jewelry. This company currently has a short float ratio of 34.85%, which means that nearly 35% of NILE stock is held short. If the market for NILE does rally and a short squeeze occurs, we are targeting resistance of $45 a share as a short-term target.

NutriSystem Inc. (NASDAQ: NTRI) provides weight management products and services. This company currently has a short float ratio of 35.64%, which means that 35% of NTRI stock is held short. If the market for NTRI does rally and a short squeeze occurs, we are targeting resistance of about $22 a share as a short-term target.

Strayer Education, Inc. (NASDAQ: STRA) provides various academic programs across the United States through traditional classrooms and the Internet. This company currently has a short float ratio of 28.05%, which means that 28% of STRA stock is held short. If the market for STRA does rally and a short squeeze occurs, we are targeting resistance of $200 a share as a short-term target.

The McClatchy Company (NYSE: MNI) primarily operates as a newspaper publisher, but it also has holdings in several online companies. This company currently has a short float ratio of 32.94%, which means that 33% of MNI stock is held short. If the market for MNI does rally and a short squeeze occurs, we are targeting resistance of just under $5 a share as a short-term target.

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