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As traders, we strive for fast and big moves – after all, this is how we make our bread.

And when it comes to those, I know exactly the place to look!

There’s one setup that I’ve seen repeat time and time again, year after year…

You may not believe me, but I used the exact setup to call today’s subject matter out to you just a few days ago!

Let me show you exactly what happened here and teach you how to spot the next such opportunity.

Basics Of Explosive Squeezes

There are people who say charts are random and history does not repeat itself when it comes to stocks…

There’s some merit to that argument, but on the other hand, this is exactly why short squeeze setups are such favorites among momentum traders – most of them share clean and recurring structural characteristics.

Namely, most major squeezes are a sum of 4 key parts:

  1. A fundamental event or a technical move that attracts the attention of short traders.
  2. A “short trap” – an area where short traders think they’re right & the stock is headed lower, causing them to pile in aggressively.
  3. A climb above that area, making shorts uncomfortable or outright putting them underwater.
  4. A resulting parabolic explosion higher.

Here’s an example of how this played out in TLRY over last year:

The cannabis sector wasn’t doing great and then the pandemic seemed to have put in the last nail…

Stocks in the sector rightly enjoyed massive short interest levels while hovering at some of the lowest readings ever, with seemingly nothing but more bloodbath ahead.

Then, pro-legalization Joe Biden won the presidential election, causing them to catch a bid and that… ended up a massive catastrophe for stubborn short traders.

This is also the biggest beauty of it – squeezes are purely structural moves, which makes them so repeatable!

More often than not they’re disconnected from a company’s performance or underlying business – yes, Biden signaled a better legal environment ahead, but TLRY didn’t become 15x bigger/better/more profitable within those 3 months. It was the stubborn short traders who did all the work.

TLRY is one example – of course, you won’t find an identical chart. But, if you go back and look at the biggest squeezers, I guarantee you’ll note a lot of similarities.

SPRT’s Textbook Trade

Now that we’ve gone over the key attributes of the setup, let’s look at what exactly happened with Support.com – SPRT.

I will share the fact that the stock enjoyed a 40%+ short interest over the past few weeks, but will let the chart do the rest of the talking.

Have another look at what I just wrote and showed above, and let me know if you see anything similar on this SPRT chart from a few days ago:

If you’re confused, let me help you out:

The chart is not a mirror image of what I’ve just gone over in TLRY, but you can clearly see the same exact forces setting the stock for what’s to come.

And with that, we’ve only got the last and the coolest part left…

Parabolic Explosion

Now, before I get to the juiciest stuff, it is worth mentioning that SPRT not only had a high short interest but also some suspicious options activity, potentially signaling a short trap – something, I’ve highlighted in my recent watchlist of stocks with unusual options activity.

My thesis and game plan were as follows:

I was sure on point in calling the name out to you, but my generous price target was slightly off… by some 40 points!

Shares hit my price objective yesterday and today… well, you can see for yourself.

My game plan from above worked out perfectly and this is exactly the trade I would aim for again:

  1. Find a consolidation that puts shorts underwater
  2. Wait for a confirmation move higher, find a key level – $14 in our case.
  3. Wait for a hold that level, go long against it.

I can only reiterate that short squeezes remain some of my favorite momentum setups – for the exact reasons, we’ve just gone over.

I’m glad I brought this one to your attention.

Author:
Jason Bond

5 Comments

  1. RB is the best service bar none. Markets have gotten me depressed this summer. SPRT gave me new hope.
    Thanks for your picks. Awesome!

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