Not exactly. A short squeeze occurs when somebody with a lot of money buys enough stock to drive the price high enough so that whoever is short is 'forced' to cover their short position. Covering a losing position is an emotional decision, and somebody with a lot of money can read the emotions by the price action.
At least that is my theory, but I'm just a little guy that doesn't know much.
It happens every day. Some market makers are long on a particular stock, and some are short. As a general rule, the winner is the dude with the most money.
What happened on last Wednesday, in my opinion, was that ALL the market makers could see that there was an organized consortium of day traders, trading on ISLD, that were shorting ADSP. I was watching the stock (and made 4 winning long trades) all day. It was pretty obvious that a bunch of guys on ISLD were shorting the stock in large quantities. If you look at a 5 minute bar, you'll see that somebody tried to get them to cover late in the day on Wednesday. You can see this from the price change, just imagine you were shorting it at the high points all day, and then at the end of the day you got nervous.
I'm not suggesting that everyone on the planet was shorting the stock, but I am saying that I could see that some people trading on ISLD had a big short position at the end of the day.
Now, if somebody has a big short position, then somebody else has a big long position. The shorts sold to somebody. If that somebody had a large bankroll, then that somebody might decide to buy a very large amount of stock on Friday. The day traders that were either watching the stock or long themselves (such as me) could see that whoever was short was in trouble from 8:30 on. The stock 'should have' backed off after it traded at 20 at around 9 a.m.
But it didn't. It broke through 21, then 22. The longs were on it in a major way. I was one. The market makers that wanted to short the stock as it ran up did so, but it didn't slow down the buying until the stock got 40 bucks. At that point, many people that were short figured out that they were really screwed. The move from 40 to 57 was nothing but a short squeeze on the people that were shorting it up from 22. It ran out of steam above 50, and came back down to around 37.
The party was over. The proof, of course, is the fact that the next day it went straight back down.
I'm not saying Anthony was 'wrong' on his call. Nobody will ever know exactly where he shorted it and where he covered. I'm sure he made money...that is not my point. My point is that anybody that cares to look at a chart, any daily chart for the last 50 years on any stock, can observe what happens the day after a breakout from a base on high volume...especially when the stock closes at or near the high.
Shorting a stock on that day, in my opinion, is utterly foolish. The odds are against you, in a very big way, and it's too bad that someone that listens to advice to short a stock in a pattern like that is unaware that if he holds it overnight, he better have some more money in his account to double up on his losing position, and he better be very, very observant on the second day of the move, because once in a while the second day closes higher than the first, and the third day closes higher than the second, and at some point he is going to run out of money and be dead friggin' meat. It only takes one time to get crushed. You want to study money management, then Rule #1 is not to throw more money at a losing position if you don't have to. Say whatever you want about TA, but I called the short squeeze on Wednesday and I called the move back down on Monday, and I did it with TA.
Yes, it came back down to 12. Yes, anyone who was short at 12 and held on got out without getting crushed. And yes, they had to pay a margin call on Monday if they did not have enough dough in their account to pay for the stock at 37. I don't know about you, but I don't relish the idea of throwing money at a 12 dollar short that closes the next day at 37. That is not my idea of happiness and joy, no matter what happens the next day. That ain't my idea of a trade I want to do again at some point. Holding a short at 12 that runs to 50 takes balls of titanium and cash...sometimes a lot of cash. Not my idea of Chapter One in Fun Ways to Make Money in the Stock Market.
Lots of the brokerage houses are publicly traded companies. Guess where the profits come from? Do you think that these houses have traders that trade with the house money...that trade a house account? If you were hiring a guy to trade your money, who would you hire? A guy who made money, or a guy who loses money? How much is that guy worth? When he takes money out of the market, whose money is he taking?
And contrary to what Anthony is asserting, it is not hard to short illegally. I'm surprised he is not aware of it, because he is a pretty sharp guy. I'm just a little dude that asks stupid questions.
Best of luck to all of you, this is my last post on this thread.
TLC |
