Small-Cap Stocks: Why Shorts Face Squeezes and What To Watch

Summary

The small-cap market has seen increased shorting activity, driven partly by companies that previously invested in cryptocurrency, which has since declined. This surge in shorting has driven up borrowing costs and margin requirements, making it more expensive and riskier to short stocks. Brokers are also increasingly restricting overnight short positions, forcing short sellers to cover their trades before the market close. This can lead to short squeezes, where short sellers rush to buy shares to cover their positions, driving up prices, as seen recently with stocks like AKTX, TDIC, and W. Looking ahead, the speaker is watching AKTX for a potential rebound if it breaks above $16, PCLA for continuation, and ARTL for early morning momentum. The removal of the pattern day trader rule on June 4th and the SpaceX IPO are also expected to create opportunities. The speaker emphasizes aggressive trading on high-conviction setups, noting a profitable month despite undertrading. For those interested in learning more, a Memorial Day sale on trading education is currently available.