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- FYI: Moynihan Wont Tell Employees to Leave January 27, 2012… Bloomberg Television’s Erik Schatzker spoke to Bank of America CEO Brian Moynihan this morning, live from Davos, Switzerland. Moynihan said that talks to cut employees’ pay are... Shared: Twitter: 1 LinkedIn: 0 Facebook: 0 Original news source […]
- Analysts, shareholders protest Capital Shopping Centres' land deal January 27, 2012Capital Shopping Centres' deal to buy land from its biggest shareholder, the Peel Group, has prompted a backlash from analyst -More- […]
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What a Short Squeeze Looks Like
Short selling can generate some nice profits….quickly. Chuck Hughes says maybe that’s why the word short is used – because it can be such a quick trade.
Chuck Hughes noticed OPMR this afternoon and cringed for those traders caught on the wrong side of a short squeeze. Chuck Hughes says this stock had been moving steadily lower and had even confirmed a couple of chart patterns along the way. Chuck Hughes is trying to swing trade a stock so badly beaten up on the short side can be tricky, so be sure that you pay attention when you’re short.
A short squeeze occurs when a down trending stock suddenly catches a bid and begins to rise. The traders who have short positions begin to see their trading profits slip away, causing them to panic and buy to cover their shorts. Chuck Hughes says quickly pushes prices higher, and upside momentum replaces the downtrend due to the sudden burst of buying. One look at this 2-day chart of OPMR and it’s easy to see that plenty of traders got caught on the wrong side.
Uptrending stocks will occasionally be met with a heavy dose of selling, seemingly out of nowhere. This is the same kind of behavior that leads to short squeezes, and is characterized by a large group of traders like Chuck Hughes reacting to a shift in a stock’s direction.
Short selling is not a poor trading method, so there’s nothing to be afraid of. As long as you keep your stop loss in place and remain disciplined, you can avoid getting caught in a short squeeze. Just don’t ever underestimate the level of pain in a stock when you’re trading the short side, and be quick to take profits when the landscape begins to change!
What A Breakout Looks Like
Last night in my stock newsletter, Chuck Hughes highlighted ICE for a swing trading candidate on the long side if it could make new highs at $48.50. Here’s the chart Chuck Hughes showed in last night’s newsletter:
I particularly liked the recent volatility following this stock’s uptrend, along with the fact that this stock was testing the recent highs. Throw into the mix that ICE has been making higher lows in the past couple of weeks, and the ingredients of a good setup were complete. A break above the horizontal line was the entry point Chuck Hughes showed to my subscribers, and today ICE raced higher all day long, adding more than 10% to show us a gain of more than $4.00 per share!
Here’s a look at the ICE chart after today, with the breakout very easily seen:
Don’t be afraid of trading the new issues like ICE. Just because a stock has less trading history than many others out there doesn’t mean that you can’t catch a great move out of quality chart patterns!