Long Squeeze

DEFINITION of 'Long Squeeze'

A long squeeze, which involves a single stock, occurs when a sudden drop in price incites further selling, pressuring long holders of the stock into selling their shares to protect against a dramatic loss. Less popular than its more famous brother, the short squeeze, long squeezes are most apt to be found in smaller, more illiquid stocks, where a few determined or panicking shareholders can create unwarranted price volatility in a short period of time.

BREAKING DOWN 'Long Squeeze'

Short sellers can monopolize the trading in a stock for a brief period of time, creating a sudden drop in price. The main reason why long squeezes are so rare is that value buyers will step in once the price falls to a point deemed "too low", and bid the shares back up. A rapidly falling stock, without a fundamental basis for the drop, will soon be seen as a "value" play, but a rapidly rising stock will be seen as increasingly risky with every upward tick.

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    Determine whether a stock is a short squeeze by studying the catalyst that caused the rally. Traders need to determine whether ... Read Answer >>
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