Wednesday, October 26, 2011

Short Squeeze play

A stock with 40% float short, yet to report its earnings for the quarter and a decent looking chart definitely has my attention as a possible short squeeze play. The fact that it just fell around 1% on a day like yesterday is not too shabby either. I am talking about Tesla Motors - TSLA. Below is daily chart which shows some decent consolidation after a big move up. A break of 29 could lead to another run up. Its not the best looking chart out there but for a stock with almost 40% short float, I would expect a much worse chart. Below are the daily and weekly charts. The volume pattern has been bullish for the last few weeks as can be seen from the daily chart.

The huge short float should produce some interesting action leading up to the earnings report (November 2).

A word of is important to stick to your stop loss points in any position you take, but it is especially true of short squeeze plays. Those who use fundamental analysis might have a very good reason for shorting the stock so aggressively, but as a trader who uses technical analysis, I dont care what that reason is, but that is true only if I always respect my stop loss. While short squeeze plays can reward one with quick and big profits, they sometimes offer no second chances if you disregard your stop loss.

Take care and good luck!

1 comment:

PhoenixTrader said...

Position Trader,
Long time!
Considering the insane 'daily' volatility with Merkel and Sarkozy saving their skins and the Italian expert on bunga bunga parties now on budget cutiing exercise, is it really smart to (swing) trade. Extreme daily volatility looks the wrong approach for traders. This looks like death by a thousand cuts (continous whipsaws). Any advice? What kind of trading is advisable?