Forget earnings reports and buyout announcements. If you’re looking for the most powerful catalyst in the stock market, short squeeze stocks frequently skyrocket exponentially higher in a matter of days.
Within the past couple of months, there have been several examples of 1,000% run-ups in big-board-listed stocks. Traders don’t delve into the sketchy world of OTC-listed penny stocks to make massive short squeeze gains overnight.
Back in November, DryShips Inc. (NASDAQ:DRYS) underwent an epic short squeeze that sent shares skyrocketing from under $4 to over $100 in a matter of days. EnteroMedics Inc (NASDAQ:ETRM) shares surged 1,370% in the first six trading days of 2017.
Short squeezes can be extremely difficult to predict and extremely difficult to time once the big move has begun. However, there are two key ingredients in the recipe for a massive short squeeze: high short interest and a low float. There must be enough short interest in a stock to trigger a short covering frenzy. At the same time, the stock must have relatively few shares available for short covering, which can create a bidding war among traders looking to cover
Here’s a look at three stocks that could be the next huge short squeezes.
Short Squeeze Stocks to Watch: DryShips (DRYS)
Unbelievably, DryShips stock may soon be primed for an even larger short squeeze than the one it experienced in November. This week, DRYS announced that it will be undergoing yet another in a series of reverse stock splits as the company tries desperately to maintain its Nasdaq listing and avoid bankruptcy. The announcement sent shares plummeting more than 36%.
The 8-for-1 reverse split will go into effect on Jan. 23 and it will divide the minuscule DRYS float even further. According to the company, the number of shares outstanding will be reduced to about 8.7 million, but the stock’s float is only a small fraction of that number.
According to Yahoo, DRYS currently has a float of about 1.1 million, meaning the post-split float will be roughly 137,500. There are currently 1.8 million shares held short. After the reverse split, that number will be cut to 225,000. It still represents a short percent of float of well over 100%.
With such a tiny float and a massive short interest, DRYS remains a short squeeze ticking time bomb.
Short Squeeze Stocks to Watch: Cesca Therapeutics (KOOL)
Cesca Therapeutics Inc (NASDAQ:KOOL) is a biotech company that develops blood and bone marrow processing systems, but that doesn’t matter. Don’t buy these stocks for their underlying business fundamentals. In fact, their high short interest suggests that a lot of traders think they are terrible long-term investments — that’s why they are placing short bets in the first place.
ETRM is a perfect example of how massive short squeezes can be triggered on absolutely no fundamental news whatsoever.
KOOL stock currently has a relatively high short interest of 26%. However, that short interest coupled with a tiny float of only 1.57 million means it would likely take very little to send the stock soaring.
KOOL stock definitely has a history of huge moves. In the last year alone, KOOL traded from a low of $1.85 in May to as high as $7.39 in August. More recently, the stock surged from $2.50 in mid-December to as high as $4.84 in three trading sessions.
The stock certainly still has all the necessary ingredients for another big short squeeze in the near future.
Short Squeeze Stocks to Watch: Helios and Matheson Analytics (HMNY)
Helios and Matheson Analytics Inc (NASDAQ:HMNY) is yet another stock with the perfect storm of high short interest and a tiny float.
HMNY is an information technology services company, but traders looking for a short squeeze don’t care about that. They care about the stock’s 28.9% short interest and its 978,000-share float. Until DRYS completes its reverse split, HMNY is the only stock out there with a short interest above 20% and a float of less than 1 million shares.
Back in June 2016, the power of HMNY stock was unleashed when it announced a merger agreement with Zone Technologies, Inc. The merger news sent shares skyrocketing 900% in just two days. In true short squeeze fashion, however, shares are now down 74% from their post-announcement peak.
As HMNY, DRYS, KOOL and ETRM have all demonstrated, timing is critical when it comes to trading short squeeze stocks. When a stock moves 900% in two days, like HMNY did last year, selling at the peak is nearly impossible to do. However, buying before the move starts is a critical part of minimizing risk. Even if traders only capture half of a 900% move, a 450% gain from a short squeeze stock is certainly nothing to be ashamed of.
Just make sure to remember that these short squeeze stocks are all probably terrible long-term investments.
As of this writing, Wayne Duggan did not hold a position in any of the aforementioned securities.