The current market is nuts, you have GENE, BIOC, ADXS, SGNL,CAPN and many more squeezing traders and testing your rules. These companies are complete garbage and yet they run? Let's ask ourselves why
-Negative News
News plays an important factor via fundamentals. So if everyone sees bad news and shorts the piss out of it and it holds trend, soon they find themselves in a scary situation. Knowing how to spot short squeeze or a high demand for inventory is paramount.
-Big names shorting or promoting
We often see big TWTR names going short and I mean BIG, what does this do? It causes their followers to short as well. Just remember are you the follower or the leader?
-Kool-Aid readily available everywhere
Ah yes the idiots who eventually lose. The cult followings who chase the stock so high it pops the balloon. These guys are the trolls on TWTR, they promote the stock at every turn.
-Dumb PRs/Chasers/Believers
The bs PRs that are put out there to scare the shorts, but make the believers chase at even higher prices and squeeze out the stubborn.
-Small traders do the add thing.
I see this often, a trader shorts a small amount of shares, then quickly realizes the trade is going against them, they do the add thing, by the time they know it, they have used their entire Buying Power on one trade. They then realize their account is near death and cover that size on the ask.
-Low Float Mania
When shorting a stock, look up the float. If its small and its traded the float within a few hours of trading and its some ridiculous number like 50x the normal amount of shares traded a day. Then yeah those are at high risk for possible short squeezes.
Wait shouldn't some of those reasons cause a stock to drop? Nope quit the opposite really. Supply vs demand is what should concern you more then anything.
Supply & Demand: An increase in supply will lower prices if not accompanied by increased demand, and an increase in demand will raise prices unless accompanied by increased supply
Here is a basic run through supply and demand in a chart. BIOC for example:
Do you see how this mornings gap held as support after the sell off? Support equals demand, can we break support is the question. After that initial move, it held and ramped to nhods, then it washed and the previous high became support hence demand. It grinded and resisted the break of a new high, supply line, then held support again. This is in hindsight, so playing your resistance lines and support lines is paramount. Another thing to keep in mind is the volume during a sell off or breakout. That will tell you weather or not the stock supply is greater then the demand or quit the opposite.
So in reality the above is a recipe for short squeeze, remember sometimes you have to flow against the curve and look out for what other traders aren't seeing. For example GENE a lot of people chased that short and got squeezed. A lot of folks gave up on it and big names made $ when they found the supply was greater then the demand.
Remember in high school when we where taught in science class about how to form a hypothesis (educated guess)? When picking your entries and exits remember it's all an educated guess, not an emotional one or you'll fail your science class!!!! Be smart about your entries and play those support lines and resistance lines.
It's not everyday we run into a market like this one, where its penny stocks, then fuel cells, camera, ebola, then bios stocks. One after another. Sometimes stocks don't hold up, but when they do you have to be careful, just because everyone shorts a stock doesn't mean it's the next squeeze, just have to take your best guess at the next squeeze and manage your risk verse reward.
Anyways I hope this helped
See you in Chat
Derrick J Leon
