Taylor Swift just finished up a concert in our area.
And just like clockwork, all the millennial moms were scrambling for tickets so they could live vicariously through their daughters.
And the prices were nuts. Hundreds of dollars for a ticket, and as the concert got closer, the prices skyrocketed even higher.
This is an example of a real world “short squeeze.” These moms want tickets, there’s not enough tickets, so the price goes up.
Imagine what would happen if, all of a sudden, there were only 10% of the tickets available? That would get crazy!
But that’s how a “reverse split squeeze” works in the markets. There are companies that, due to a bear market and bad operations, see their stock price trade very low. Sometimes it breaks under a certain dollar amount that could cause them to be delisted off a major stock exchange, which would spell disaster for the company.
So what they do is a “reverse split.” It’s where they reduce the overall amount of shares available while raising the price of the stock.
It doesn’t change the valuation of the company, but it drastically shifts how the stock can trade.
If you see 80% of the shares available go away, then you are dealing with a “thinner” stock. That means the stock can really push because there’s not a lot of liquidity.
Combine that with a highly shorted stock, then you’ve got a recipe for a 1-2 punch to the upside.
We’ve found a company that had a reverse split a few months ago, reducing the share count. The stock is now above a key VWAP, telling us that the average buyer is now “in the black.”
And to top it all off, the stock has a 26% float short, which means that one of every four shares are currently “borrowed” by speculators trying to make bank on the downside.
What happens to these short sellers if the stock spikes? They are forced to buy back the shares at a loss.
But if there aren’t enough shares around due to the reverse split, then they start acting like a desperate mom trying to get their daughter’s affection from a pop concert.
And the stock can squeeze higher.
That’s why we look for “POC Buildouts” – setups that have led us to gains of 216%, 527%, and 683%…
Click here and I’ll show you how these POC buildouts work in a free training.
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