The Market Got Short-Squeezed — Here’s How to Profit from It

by Andrew Zatlin

Ever heard of a “short squeeze”?

That’s what sent the market soaring nearly six percent yesterday.

Today, I’ll explain what happened…

And reveal why this “squeeze” is really just a “tease.”

For a transcript of this video, see below. This transcript has been lightly edited for length and clarity.

The Market Got Short-Squeezed — Here’s How to Profit from It

On Thursday, the market had its biggest one-day jump in two years. Ninety-six percent of stocks closed green. Wow!

Is this a sign that Christmas has come early?

Or, to the contrary, are we about to see the Grinch?

Let’s peek behind the curtain and see what’s really going on. Because unlike the mainstream press, I’ll always give you the straight scoop…

Here’s What Sparked the Fire

To set the stage here, let’s examine what sparked this fire.

Below is a five-year snapshot of the Consumer Price Index (minus food and energy). Basically, this is what guides the Fed’s decisions regarding interest-rate hikes:

As you can see, inflation’s been soaring. But look what happened this week. It cooled a bit — it appears to have peaked.

And this sudden shift is what created a “short squeeze.” Let me explain…

Panic-Buying Ensues

A short squeeze happens when a stock has a lot of “short sellers” — in other words, when a lot of investors are betting the price of a stock will decline.

But if the stock’s price unexpectedly jumps higher, these short sellers might decide to cut their losses and exit their positions. To do so, they have to buy the stock.

But that just drives up its price higher!

Well, heading into this week, the “bears” were in control. There were a ton of short sellers.

But when you’ve got that kind of one-sided bet, it doesn’t take much to create panic-buying…

Connecting the Dots

You see, when the inflation data came out, it was softer than expected. That created the impression that the Fed might start easing up on its interest-rate hikes.

This set off a chain of events where the dollar became less valuable — and thus, stocks became more attractive.

Now all those big bets against the market were in trouble. So investors needed to reverse course. They needed to start cutting their losses…

And that’s what led to the huge market jump.

These Three Stocks Reveal the Truth

The fact that this was a short squeeze became clear after I looked at a handful of stocks — ones that, despite being in trouble, bounced higher. For example:

  • Retail chain Bed Bath & Beyond (Nasdaq: BBBY) is going bankrupt. Eighty-five percent of its trading shares are betting against. So it had an eighty-five percent short ratio. Yet its stock jumped eleven percent in one day!
  • Online-car retailer Carvana (NYSE: CVNA), another troubled company, saw its stock climb thirty-two percent, despite a thirty-five percent short ratio.
  • And Wayfair (NYSE: W), a furniture company, has a short ratio of twenty-one percent. Yet its stock climbed nearly thirty percent.

These are the classic signs of covering short positions — a short squeeze.

In fact, this squeeze is merely a market tease. Here’s what I mean…

A Recession is Still Coming

With earnings season behind us, options closing next week, and about five-billion dollars’ worth of share buybacks a day, the pressure to buy should continue. That means you can expect a bullish market for the next few weeks, at least.

But what I want you to do is get ready to sell — perhaps as soon as next month. Why? Because the rug is about to be pulled out from under us.

You see, despite the market’s jump, nothing has changed. We’re still facing a weakening economy and a recession. The recession is going to trump any bright spots along the way.

Keep in mind, the smart money was and still is betting on a market collapse. And nearly a dozen sectors are still trending down.

You want to sell into this temporary strength and prepare for rough times ahead. I believe Q1 2023 is when companies will begin layoffs and reduce spending. That will be the “kitchen sink” moment. And that’s when you want to think about buying — when that bottom surfaces.

If you’re a “Pro” subscriber, I’ll reveal a way to target a specific sector that’s in particular trouble, and potentially capture gains of nearly 300%.

In the meantime, we’re in it to win it. Zatlin out.

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In it to win it,
Andrew Zatlin
Andrew Zatlin
Moneyball Economics