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To: Lucretius who wrote (75323)	10/28/1998 6:37:00 PM
From: Venkie	Read Replies (1) \| Respond to of 176387

Is this what you want folks to have happen.. A Short Course on Short Squeezes Individual investors often think of a "short squeeze" as something like a summer romance -- intense, pleasurable, and a perfect elixir for what ails them. But what is a short squeeze really, and is it something you can enjoy without morning-after regrets? Short-sellers typically make their money by betting that stock prices will fall. They do this by "shorting" a stock rather than "going long." That is, instead of buying a stock with the intention of selling it later at a higher price, the "short" sells first with the intention of buying the stock back later (or "covering") at a lower price. The short pulls off this perverse-sounding feat by initially selling stock that's been borrowed from someone else. Who would loan them stock? Well, you would. If you have your stock in a margin account, you've already agreed to let your broker loan it to short-sellers. Your brokerage firm generates extra commissions by conducting transactions for the short-seller, by loaning the shares to another brokerage firm, or by pocketing interest income from the money generated by the short-seller's stock sale. In theory, you're none the worse off for having someone else trading your shares. After all, they'd just be sitting in your account otherwise. Whenever you want to sell the shares, your broker will manage to have them, even if that means telling the short-seller to return them. Short-selling isn't for everyone, but the Motley Fool has consistently held that shorting is a viable investment option for experienced investors. The same grasp of fundamental analysis that makes someone a good long-term investor can be used to find overvalued stocks that are worth shorting. Of course, in going long, you risk no more than what you've invested up front. A short has potentially unlimited risk since the stock she shorts at $20 could end up becoming the next Microsoft. For most investors, short sales should constitute no more than 10% to 20% of a diversified portfolio. Also, short-sellers need to be more proactive in cutting losses when they're wrong about a company's fundamentals. Finally, a short-seller also needs to be attuned to market forces that can quickly turn even a dubious outfit destined for bankruptcy into a 300% gainer in the meantime. The short squeeze is one such force. The essence of a squeeze is that brokers who have loaned out the stock are now requiring short-sellers to return the shares, meaning that the shorts must buy the stock themselves or risk a forced "buy-in" by the brokerage firm. Because brokerage firms aren't very picky about paying a good price on such occasions, the stock can spike dramatically, especially since market makers responsible for providing liquidity for a stock often see forced buy-ins as an opportunity to make a quick killing by temporarily raising their prices. Forced buy-ins may result from a trade going so much against a short-seller that he gets a margin call from the broker to either put up more cash or risk losing the position. Other times, it simply represents a change in short-term supply and demand exacerbated by increased trading volume and rapid turnover. Let's say a heavily shorted company announces positive news that brings in new buyers. This demand pushes the stock higher, but it also leads some old holders to sell. The stock moves from one broker to another. Short-sellers who had borrowed shares from these old holders may have to cover the short position if their broker can't find new shares for them to borrow. This creates more demand, which pushes prices higher and continues the process. As you might expect, short squeezes often come in waves that attract momentum-oriented investors who see a stock rising and jump on for the ride. This additional demand, in turn, exacerbates the squeeze. Of course, these momentum investors usually jump ship quite rapidly when the momentum changes, adding to selling pressure later. Conversely, there are also momentum shorts who jump on a sinking ship and then quickly cover their short positions when the momentum shifts. In recent weeks, many favorites of short-sellers -- including Think New Ideas (Nasdaq:THNK - news) , Quadramed (Nasdaq:QMDC - news) , Coinmach (Nasdaq:WDRY - news) , and Source Media (Nasdaq:SRCM - news) -- have seen short-covering rallies as momentum players close out short positions that proved profitable during the recent market meltdown. Such short-covering rallies can appear indistinguishable from short squeezes and can even trigger a short squeeze, yet they typically are motivated by profit taking after a stock has nose-dived. Squeezes are most likely to occur with stocks susceptible to these supply/demand imbalances. Some numbers worth checking