Short squeeze

A feedback loop rather than an opinion about value. A rising price produces losses on short positions, losses reduce the equity supporting them, and closing a short means buying. The buying is therefore produced by the move itself, which pushes the price higher, which produces more of it. Nothing about the underlying business or economy needs to have changed for the sequence to run.

The conditions that make it possible are measurable in the cash market. Short interest expressed against the free float says how much of the tradable stock has been sold short, and short interest expressed against average daily volume, quoted as days to cover, says how long the closing would take at normal turnover. A tight borrow market and a small float make both worse, and a catalyst, commonly a results announcement, supplies the initial move.

Three limits apply to reading those figures. They are published with a lag, they describe the securities borrowing market rather than derivative positioning, and a high ratio has persisted for long periods without anything happening, so the measure describes fragility rather than timing. What is not disputed is the character of the move when it does run: liquidity thins, quotes gap, and a protective stop is a trigger rather than a promised fill price in that tape. Whether a squeeze can be identified in advance is contested.