The worst trade idea I hear time and again on CNBC is to buy a stock because it is in a short squeeze. Every time I hear that trade I want to throw stuff at my television. Whoever, and there are many, makes this comment is just bringing the lambs to the slaughter at least 50% of the time.
My job is as a sheep dog to protect the lambs from the wolves (CNBC pundits) so take this to heart my flock.
Here is the skinny. It is a really bad idea to buy a short squeeze if historically the shorts make money when they short the name. It can be a really good idea if the shorts historically lose money.
For a long time our data could only identify if a stock was in a short squeeze or the shorts were correct. We did not calculate how the shorts did when they bet against a stock. Never again will I buy a short squeeze without first determining how the shorts did because we now calculate those numbers.
Today shorts in Advaxis ($ADXS) are getting taken to the woods as the bears run for cover. There is not a ton of history on this name but the last time that shorts came into this name they lost 611.40% before they gave up.
Now they are short again and coming into today had made 38.85% on the short side, really nice money for the short side. With the stock up 23.88% today their gains are rapidly fading away.
What I know about this stock from the time that they lost 611% was that they stayed short for 234 days before giving up. That shows they are REALLY stubborn. I expect they will be just as stubborn this time around and soon short sellers will have a losing position.
The bottom line is that if you are buying a stock for a short squeeze or shorting a stock that is heavily shorted and you do not know how the shorts have done, then you are flying blind. As such, expect to have trades that may end up with substantial losses.
A perfect example of this today is $DRD or $GPRE.
If you enjoy the content at iBankCoin, please follow us on Twitter
