In the vast stock trading landscape, investors are always on the lookout for highly shorted stocks as their potential for abrupt price breakouts looms large.
As such, the strategy of identifying stocks with a significant percentage of their float shorted, a tactic that yielded remarkable profits in 2021, remains a focal point for many. This is because such stocks can sometimes witness a phenomenon known as a ‘short squeeze,’ which occurs when a stock with a high percentage of short interest rapidly increases in price, forcing short sellers to buy back shares to cover their positions, further driving up the stock price.
In this context, we delve into the dynamic realm of short squeezes, exploring the prospects of identifying the next GameStop (NYSE: GME) and the potential for a massive rally in the coming months.
Paramount (NASDAQ: PARA)
Active stock traders know that in 2021, Paramount’s (NASDAQ: PARA) stock skyrocketed from $30 to more than $100 in one of many significant short squeezes that happened that year. This dramatic increase was driven by a combination of factors, including retail investor interest and short seller pressure.
Since then, PARA has seen a rapid descent and has been on an overall downtrend in recent years. However, it is now back on the traders’ radar. According to MarketBeat data, almost 15% of the entertainment company’s float is shorted, translating to more than 85 million shares.
This month, PARA recovered by around 40% from its 2023 lows, leaving short traders with two choices – take the gains or reduce losses depending on their entry point.
If the stock continues to trend higher, the bears may start to get increasingly anxious and buy the stock at a higher price to close their positions. This could lead to a surge in demand for PARA and pave the way for a possible short squeeze.
Marathon Digital (NASDAQ: MARA)
With Bitcoin (BTC) recently staging a bull run and its high short interest, cryptocurrency mining firm Marathon Digital (NASDAQ: MARA) is also among the stocks traders are monitoring for a potential short squeeze.
After hitting almost $20 in July, the stock saw a major correction down to $11.2.
Given its current price and the potential for continued upward trends in the crypto market, coupled with a noteworthy short interest of nearly 24%, MARA seems strategically positioned to catch bears off guard.
Apart from its speculative appeal and improved prospects for the broader cryptocurrency landscape, Marathon Digital also recorded encouraging developments from a business standpoint.
Notably, the Marathon’s installed hash rate soared over 500% in Q3 2023. Also, the crypto miner projected a further 30% growth in hash rate capacity for 2024.
This, coupled with the impending Bitcoin halving next year, could attract the bulls’ attention and clear the stage for a potential squeeze.
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Disclaimer: The content on this site should not be considered investment advice. Investing is speculative. When investing, your capital is at risk.
Source: https://finbold.com/short-squeeze-scenarios-identifying-the-next-gamestop/