here is an informative article regarding short squeezes:
(compliments to Curlton Latts on the Cymer thread)
<<How To Spot And Profit From Short Squeezes
This article by Mr. Sands describes what to look for in a short squeeze. While, he mostly describes commodity markets the same holds true for any markets, including markets in stocks.
investors.net
Excerpts:
But what I do know is that there are certain things that can make a market (any market) just look `funny'.
First of all, in order to have a potential for a short squeeze, the market has to be in an uptrend.
Also, the uptrend must continue in such a way
that traders who got short at an inopportune place never really
had a chance to get out without taking a loss. This can be
characterized on the chart by a series of higher daily highs as well
as higher daily lows. The thought should be that regardless of
when you sold this market, the trade almost immediately went
against you, and it has been getting a little worse continuously
every day since then. You keep thinking, one nice sell-off and I'll
get out, but it never happens, and your loss just keeps growing.
If this happens to enough people, then at some point they all
must throw in the towel, and that's when the market really
explodes to the upside.
The second thing you need for a short squeeze is what we call a
`forced timeframe'. In other words, even if you were short and
losing money, and decided to be stubborn and just hold on
forever (even if it meant getting wiped out), you couldn't have
that option if you wanted to. This happens to locals all the time
on a short term basis. If a local is stuck in a trade and it keeps
going against him all day, then somewhere in the last half hour of
the day, he is just going to puke that trade out, because a local
almost by definition is a short term trader who does not usually
carry overnight positions. For the position trader, this scenario
occurs when a contract month is about to go off the board
(expire). It's like the game clock is about to run out, and you
have nowhere left to go, you must cover the trade or risk
physical delivery.
Good Luck To Each and All
Curly
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[6.6]
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