Short squeezes gained significant attention in 2021. This was largely due to Reddit traders coordinating purchases of heavily shorted stocks like GameStop and AMC Entertainment, leading to rapid price surges as short sellers rushed to cover their positions.

A short squeeze occurs when a stock's price rises sharply, forcing short sellers (investors who have bet against the stock by borrowing shares and selling them, hoping to buy them back cheaper later) to purchase shares to cover their positions to limit losses. This buying can push the stock price even higher, leading to more short sellers buying to cover, further driving up the price in a rapid upward spiral.

Yesterday's stock market action witnessed significant short squeezes, driving substantial gains in several companies. Digital World Acquisition Corp ($DJT(DJT)) led the surge with a 34% increase, followed by MicroStrategy Incorporated ($MSTR(MSTR)) at 20%, and both Reddit Inc. ($RDDT(RDDT)) and Alabama Power Company ($ALAB(ALAB)) at 16.5% each. GameStop Corp ($GME(GME)) also experienced a notable jump, climbing 14% ahead of tonights earnings. These movements underscore the impact of short squeezes in propelling stock prices upwards in a short period.

During holiday periods, retail investors can dominate market activity, leading to increased volatility, especially in stocks with limited availability and high short interest. Market liquidity often decreases because many traders and institutional investors take time off. This reduced liquidity means fewer shares are traded, which can amplify price movements for stocks under short pressure. If a positive catalyst or unexpected news emerges, the fewer available shares make it harder for short sellers to cover their positions without significantly impacting the price, leading to a short squeeze. The combination of reduced liquidity and the urgency to cover short positions can thus trigger more pronounced and rapid price increases.

This scenario recalls the Reddit Rebellion, demonstrating the impact when retail traders target heavily shorted stocks. Recent market trends indicate a renewed focus by the retail sector on stocks with high short interest, further sparked by Reddit's recent IPO, attracting considerable attention.

Investing in a stock solely for its short squeeze potential isn't typically advised, yet the combination of such potential with a strong long-term business model can be compelling, especially for daytraders looking for a quick profit.

In February, short sellers increased their positions against sectors like information technology and communications services, marking the largest rise among the S&P 500 sectors. Short interest rose by 21 basis points to 3.7% of total float for the IT sector, and 18 basis points to 3.5% for communications services, according to data from S&P Global Market Intelligence. Consumer-discretionary stocks remained the most shorted (5.4% of outstanding float). Communication services are the second best performer since then, chalking up gains of 4.6% in that time (Energy is tops with a 9.1% rise). This means there is more potential firewood for short crushers looking to ignite a stock. 

Short squeezes around market tops can be particularly dramatic due to heightened speculative trading and increased leverage among investors betting against overvalued stocks. As prices reach their peak, any unexpected positive news or a turn in market sentiment can prompt a rapid covering of short positions. This buying pressure, in the context of already high valuations, can lead to significant price spikes. However, these conditions can also increase market volatility and the risk of sharp corrections once the squeeze subsides.

Short interest percentage and float are critical in short squeezes. The short interest percentage indicates the proportion of a company's available shares (float) that are currently sold short but not yet covered. A high short interest can signal that many investors are betting against the stock. When these heavily shorted stocks start to rise in price, short sellers may rush to buy back shares to cover their positions, driving the price up further. The float represents the number of shares actually available for trading; a smaller float can amplify this effect, making the stock more susceptible to dramatic price movements.

Keeping an eye on GameStop's post-earnings market response will be key for traders looking to gauge the interest in short squeezes. A positive reaction might indicate an ongoing trend, suggesting readiness to target similar stocks. This strategy often influences broader market movements. Maintain a watchlist of potential stocks for such opportunities, based on market reactions and short interest levels.

The following is a list of stocks we see as short squeeze candidates. We are including a trigger price which traders should set as an alert. 

Bowlero ($BOWL(BOWL))

Short Interest- 76%

Float- 21.63 mln

Potential Squeeze Trigger- $14

Bowlero Corp., known for its bowling centers and entertainment offerings, is seeing stabilization and improvement in same-store sales (SSS), signaling a reduction in investment risk and a recalibration of investor expectations. No longer seen as a high-growth entity with over 20% SSS growth, it's now recognized for its low to mid-single-digit (LSD-MSD%) organic growth in a mature market. Despite these adjustments, Bowlero's recent fiscal Q224 results surpassed revenue expectations with steady EBITDA, driven by robust corporate events demand and significant performance improvements in its Lucky Strike brand.24E/CY25E EBITDA, vs peers at ~11.3x/10.3x.

The stock has chopped around in a tight range between $12.20-14.20 since posting results in early February. A push up through $14 would get shorts nervous and entice short squeezers off the sidelines.

B. Riley Financial ($RILY(RILY))

Short Interest- 62%

Float- 16.1 mln

Potential Squeeze Trigger- $21.70

There are reasons why some of these companies have high short interest. B. Riley Financial, a Los Angeles-based investment bank, faces scrutiny and market challenges, including a delayed annual report filing. B. Riley Financial has seen significant short interest, largely due to its entanglement in complex dealings with a client implicated in a securities fraud investigation. This situation has raised concerns among investors and attracted attention from short sellers who critique the company's financial strategies and relationships. The controversy, combined with a recent significant loss and the fallout from high-profile legal issues involving associates, has compounded skepticism around B. Riley's stability and future performance. One employee recently called this company Wolf of Wall Street Meets Enron.Despite facing criticism and the attention of activist short-sellers, allegations of involvement in fraudulent activities have led to investigations, affecting its market performance further. The company has stated its cooperation with any potential SEC investigations.

Big Lots ($BIG(BIG))

Short Interest- 43%

Float- 27.3 mln

Potential Squeeze Trigger- $4.17

Big Lots shares saw a significant drop in early February after stating that it was seeking financing amid continuous losses. The downgrade by LOOP from Hold to Sell, with a price target reduced to $1 from $6, reflects concerns over Big Lots' dwindling consumer relevance and skepticism about its strategy shift back to bargain products amid a changed competitive scene. The company's financial instability, highlighted by seeking a turnaround consultant, exacerbates worries. One item that caught our attention was the 13F filing from Scions Michael Burry, he of the Big Short fame. Mr. Burry, who is a legend among short sellers, was buying this stock in Q4. Whether or not he kept those shares is the key question. Still, his involvement in the name will put it on radars. 

Carvana Co ($CVNA(CVNA))

Short Interest- 43%

Float- 86.8 mln

Potential Squeeze Trigger- $88

Carvana Co. operates as both a holding company and an eCommerce platform specializing in the sale of used cars. It has become notably prominent for its potential in short squeezes, distinguished by its remarkable performance on the stock market. Carvana has experienced a remarkable rally with a 1,690% increase in shares since 2023, surpassing many growth stocks, including Nvidia. This surge reflects optimism as Carvana avoided bankruptcy, improved its debt situation, and moved towards profitability. After prioritizing market share growth over profits, leading to significant cash burn, Carvana shifted focus towards profitability, reducing unprofitable sales and cutting operational expenses. Despite this shift, challenges remain in balancing growth with financial sustainability, as evidenced by its cash reserves and debt levels.

Beyond Meat, Inc ($BYND(BYND))

Short Interest- 39%

Float- 61.6 mln

Potential Squeeze Trigger- $8.50

Beyond Meat is gaining interest from investors, buoyed by positive earnings estimate revisions and a favorable industry rank. The company's focus on profitable products and cost control is expected to improve margins and earnings, with analysts showing increased optimism. Despite a recent $250M mixed shelf filing causing a 7% stock drop, upgrades and performance over the past three months suggest a potential turnaround. However, challenges remain, including soft US demand and the execution of new product launches and price increases amidst economic constraints.

C3.ai, Inc ($AI(AI))

Short Interest- 37%

Float- 105.9 mln

Potential Squeeze Trigger- $29.50

C3.ai specializes in AI applications for demand forecasting and supply chain optimization. With the stock currently below its peak, it presents a buying opportunity ahead of expected growth. The company, which uses a subscription model for revenue, serves diverse sectors including the federal government. Despite a slowdown after shifting to consumption-based pricing, revenue growth is picking up, indicating a bright future. With recent major contracts and a wide industry interest, C3.ai is positioned for substantial growth, potentially signaling a significant upward trajectory for its stock. With exceptional performance in the federal sector and partnerships leading to expansions with U.S. government departments, C3.ai's momentum is evident. The company's strategic focus on subscription-based revenue and diversification across industries underscores its potential for future growth and profitability. It certainly does not hurt to have AI as your ticker when looking to attract eyeballs for a squeeze!