It was a triumph of David over Goliath in early 2021 when the Reddit posters at r/WallStreetBets beat the market-manipulating short sellers at their own game. This began with a coordinated buying spree of Gamestop (GME) stock, which forced the hedge funds to cover their positions and flee.
The mainstream media depicted the Reddit users as outlaws, but really they weren’t doing anything that the short-selling institutional investors weren’t already doing for years. But then, the media has always had two sets of standards: one for the 1%, and another for the rest of us.
It was impossible not to celebrate when the Reddit traders stuck it to the big bankers who had been illicitly suppressing the silver price. After the #SilverSqueeze went viral on social media, the silver price got a nice boost and the short sellers ran for cover.
None of this would have been possible if it weren’t for the renaissance in retail investing that’s taken place over the past couple years. With the advent of the Robinhood, WeBull and similar trading apps, the markets have truly been democratized and just about anybody can participate.
After Gamestop stock and silver were short-squeezed, suddenly every analyst and investor was looking for the “next “Gamestop.” There were multi-bagger gains in movie-theater chain AMC (AMC), electronics manufacturer BlackBerry (BB), and even the relatively obscure Medicare Advantage insurer Clover Health (CLOV).
CLOV stock chart. Courtesy: Yahoo Finance
Actually, the short squeezers seem to take price in promoting what might be called “underdog stocks.” If a stock is hated or at least underappreciated, that makes it an attractive short squeeze target.
That’s why you won’t often find blue-chip stocks getting short-squeezed. Ultra-wealthy companies like Amazon and Google don’t need Reddit’s help – their stocks are already quite expensive.
Also, it would be rather difficult for retail traders to have a substantial impact on Amazon stock or Google stock. Those stocks have a large float, or a large number of shares available for trading.
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Therefore, the “next Gamestop” is more likely to be a stock with a small or medium-sized float. Moreover, you’ll want to look for stocks with a high short interest, also known as short float.
This means that a large portion of a stock’s available shares are being short-sold. This can be like a coiled spring, since if the share price goes up, some of the short-sellers will be forced to cover their positions, thereby sending the share price even higher.
So, to recap, you’ll want to look for companies that are somewhat of an underdog, where the share price is fairly low and there’s a limited number of shares available, and a high percentage of those shares are being held in short positions.
BB stock chart. Courtesy: Yahoo Finance
Just be advised that there’s no way to predict with 100% accuracy whether any particular stock will be the target of a massive short squeeze. It’s a hit-or-miss proposition, but it can be fun to speculate and try a few lottery-ticket investments.
There are actually some websites dedicated to helping people find the “next Gamestop.” One of them is HighShortInterest.com, where there’s a database of stocks which have a short interest of over 20%.
As I’m writing this, some of the most shorted stocks include Arcimoto (FUV, 37.26% short interest), Workhorse (WKHS, 35.81% short interest), and Blink Charging Company (BLNK, 35.31% short interest).
Anything over 20% is pretty high short interest, and when it’s above 35%, you’re looking at a stock which could skyrocket quickly if the share price goes up.
But of course, you’ll need to conduct your due diligence on these companies. After all, there might be heavy short interest in a stock for a valid reason.
Also, if you profit from a short-squeezed stock, have a profit target in mind and stick to your plan. When you’re greedy, a big win can quickly turn into a loss.
Finally, keep your position sizes very small, and enjoy the process. Hunting for the next winner should be just as gratifying as booking profits.
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