What is short squeeze? Short squeeze is when a stock price rise to a point that forces sellers to cover. It could last from couple of days to couple of weeks depending on number of shares shorted.
Basically the more days to cover, the bigger short squeeze (if it happens). So the only number you would have to pay attention to is “Days to Cover”. Normally I would look for at least 5 days. What “Days to Cover” means is how many days it will take all shorts to cover their position based on current average volume. For example, on DVAX it is 20 days to cover (as of 8/15/2012 data) which means it will take 20 days for those short sellers to be able to cover ALL their position. Below is an example of short squeeze on KWK on 4/25/12 – 5/1/12 and a big squeeze again on 6/14/12 – 7/5/12 which Jason Bond alerted this as a buy on the low 3s and many members have made big money on this call.
A few facts that you need to know about short interest:
1) High number of “Days to Cover” is not a buy signal. There are reasons why so many people want to short and sell that particular company’s stock.
2) Timing is everything. Short squeeze (in my opinion) is the highest profit potential in little amount of time if you know how to play it correctly (like this guy).
3) It is very hard trying to time the bottom but you can get ahead of the game by using Candlestick Signals.
4) Short squeeze is a short live opportunity so take your profit along the way. Most of the times a stock will retrace after a squeeze because rapid run up is mostly cause by artificial buyers (short covering).
5) You can find information on short interest on Nasdaq.com or ShortSqueeze.com (personally I look for >5 days to cover).
Keyword (from Investopedia):
Short Interest: Is a total number of shares of a particular stock that have been sold short by investors/traders but have not yet been covered or closed out. This can be expressed as a number or as a percentage
Short Squeeze: Occurs when short sellers are scrambling to replace their borrowed stock, thereby increase demand and decrease supply, forcing the price to go up. Short squeezes tend to occur more often in smaller cap stocks which have a very small float (supply).
Days to Cover: You can calculate days to cover by this formula: Days to Cover = Current Short Interest/Average Daily Share Volume. This ratio is somewhat unique because it measures the future buying pressure on a stock that is virtually certain to happen. Short sellers must buy back shares at some point if they are to close out their positions.
Buy-In: When an investor/trader is forced to repurchase shares because the seller did not deliver the securities in a timely fashion, or did not deliver them at all. This happens more often on hard-to-borrow stocks.
Hard-to-Borrow: A list used by brokerages to indicate securities considered difficult or unavailable to borrow for short selling transactions.
