Short squeezes often result when the price has risen to a point where short sellers decide to cut their losses and get out. This can originate from stocks that have been targeted heavily on the short side with high % of short sellers relative to the % of shares floating. All it takes then is one big news for the demand of the particular stock to surge, disrupting the balance between supply and demand. Often times, this is followed by a series of buying sessions, which drives the short sellers to cover their positions by buying the stock back.

Below is an example of AIG being short squeezed. Now, keep in mind that not all stock surges are driven by short squeezes. It is very possible for stocks to increase in price rapidly generated by increased demand versus supply.

So you can see that identifying the right stocks with potential short squeeze can reward you greatly.  Now how do you go about identifying that?

shortsqueeze.com is your answer.

Short Squeeze dot com is one of the most popular websites for identifying short squeeze opportunities.  It features an array of useful data at no cost but also offers more in depth data with a subscription based service should you need more in depth features.

This is what you get to see when you enter a quote at shortsqueeze.com.

“Short Squeeze Ranking” is the proprietary data that it offers as part of the content.  Taken directly from shortsqueeze.com:

ShortSqueeze.com has developed the Squeeze Ranking™ system used to gauge a stock’s squeeze potential. We use a proprietary algorithm used to rank a stocks potential for either a bullish or bearish stock price move. Squeeze Theory™ is the creation of Dylan Wetherill, the founder of Short Squeeze™. The theory seeks to identify the basic principles that cause a stock to experience a short squeeze (bullish) or a long squeeze (bearish).   For example, a Squeeze Ranking™ of 0 is neutral, with unlimited up or down values to mark bullishness or bearishness. A Squeeze Ranking™ of 2,000 would be more bullish than a Squeeze Ranking™ of 50. Conversely, a negative Squeeze Ranking™ of -3,000 would be much more bearish than a Squeeze Ranking™ of -50. As a Short Squeeze™ member you are able to search all stocks and find stocks with the highest Squeeze Rankings™: short squeeze (bullish) and long squeeze (bearish). The process Squeeze Ranking™ system is designed according to the principles of Squeeze Theory™.

Whether you sign up for their monthly service or not is up to you.  However, you must check out the site and understand just how useful its data can be.

So what is window dressing?

It’s a strategy used by mutual fund and portfolio managers near the year or quarter end to improve the appearance of the portfolio/fund performance before presenting it to clients or shareholders.

Performance reports and a list of the holdings in a mutual fund are usually sent to clients every quarter. In order to take advantage of this process, the fund managers or investors publishing their performance report will sell stocks with large losses and purchase stocks that are performing well near the end of the quarter. These securities are then reported as part of the fund’s holdings, which now look much better than it did just before the window dressing.

Just to show a very simple example of how simple difference can change the aesthetics of your portfolio:
Before Window Dressing

After Window Dressing

As you can see, just by selling some of the losers and buying up some of the winners, the fund managers’ portfolio can look a lot “better” for the quarterly reports. This concept is what the investors take advantage of before quarter and year ends before their performance reports get distributed.

So what does this mean to the stock market? Well often times, the period right before the quarter end or year end tend to have advancing stocks for those that have been performing well. Well in a market like today’s where the indices rallied 50% since the March ’09 lows, you can bet there are fund managers who are window dressing to make their portfolio look better.

It’s something to keep in mind for you swing/day traders.

Backwardation has been defined well in a recent article posted on Morningstar:

When a market is in backwardation, the commodity futures sell for a lower price than the current market price. In general, it also describes a state of affairs where futures prices go lower as the expiration dates move further out. For example, soybean futures for September 2009 delivery currently sell at $9.90 per bushel. The futures for March 2010 delivery sell for $9.60 per bushel and the September 2010 delivery contracts sell for $9.30 per bushel. Buying a bushel of soybeans further and further out in time costs less money, possibly because we are providing insurance for soybean producers who will accept lower future prices in exchange for greater certainty. When we hold a futures position, the price for a given contract approaches the spot price of the commodity as our delivery date gets closer.

Similarly, contango is defined as:

The roll yield can also cut the other way and hurt the returns of investors in commodity futures. This happens when the futures prices for a given commodity are in contango, which means that futures contracts sell at a higher and higher premium to the current spot price as you buy further in advance. Right now, the primary example of a commodity in contango is natural gas.

An investor who cannot take physical delivery of natural gas will not be able to hold the futures contract until expiration. Instead, they must sell the nearest month contract as it nearly expires and put their money into another futures contract further out. UNG maintains its position in natural gas by always rolling from the nearest month contract (currently September 2009) into the next month out (October 2009). At today’s prices, selling a position of 100 September 2009 contracts would buy a position of only 90 October 2009 contracts due to the premium paid as we move further out on the futures curve. Thus, rolling futures positions in a commodity trading in contango steadily erodes the size of your exposure as you constantly buy further-out contracts at a premium, only to see that premium fall away as the futures price approaches the spot. Contango produces a negative roll yield that eats into any potential price gains on the underlying commodity.

So how does one determine the magnitude and the trend of backwardation and contango?  FutureSource.com is where I go to check the latest quotes on futures by month.

When you arrive at the site, go to the “Quotes” page and look for below:

Here you can look for all kinds of different futures that matter to you as an ETF investor.  For example, if you’re looking at UNG and natural gas, look up “NG” in the drop down box.  The result looks like this:

You can see that for natural gas (NG), it has a contango effect in which the future price of natural gas is higher than the current month.  For Sept, the price is $2.892 while Oct future is priced at $3.276.  For some, the magnitude could be greater or smaller. Check out the website, do some research yourself before you seriously start investing in commodity ETFs.  You’ll need to know this.

Here’s the current chart on natural gas futures and UNG:

Source: http://www.wtrg.com/

UNG Chart 8-20-09

Now, there’s one guy who has been getting a lot of attention, good or bad, due to his recent accumulation of UNG.  For the last week, one of StockTwits‘ “Top Data Junkies” @wsmco has been buying up UNG and confidently broadcasting it on StockTwits.  As a result, looks like he’s been feeling some heat from those who listened to his recommendation and bought UNG themselves.

So, where’s UNG going? Well, the technicals are just straight-up ugly.  Clearly in an long-term bearish trend, it’s now sitting at an all time-low with no support below.  However, the seasonal trend would suggest that the gas futures will go up in Q4 as shown below on the chart.

Natural Gas Seasonal Chart Source: Technical Commodity Trader

So what do the pros think?  Well, @wsmco’s site Wall Street Media posted a good video on UNG discussion with Todd Sullivan. According to Todd:

You can’t have natural gas around $3 and have any kind of economic recovery what-so-ever.  The math just doesn’t work.  This winter, same time next year, I don’t see how it wouldn’t be sitting at 6, 7, 8, 9 dollars.

There’s also another expert who has a bullish sentiment on gas.  Chris Nelder, an energy expert, stated it best.

Climate change concerns will lend further support to gas demand. As carbon emissions start coming with a price attached, cleaner-burning gas will be increasingly favored over coal for fueling power plants. Many newer plants use dual-fuel designs, enabling them to switch readily to whichever fuel is cheapest. As the hidden subsidy of externalized emissions costs is taken away from coal, gas will be cheaper, and it will stay cheaper.

The vehicle angle is another hugely bullish factor for gas, but so far the markets don’t seem to have discounted it at all.

As I have often suggested, the combined virtues of lower emissions, an inexpensive and large domestic supply, and its suitability as a bridge fuel to wean us away from oil will prove irresistible to policymakers, particularly as we begin to feel the effects of peak oil. Accordingly, a raft of new gas legislation is now working its way through Congress.

Another reason to start getting bullish is the extremely bearish gas sentiment itself. We haven’t seen gas prices stay this low in years, and gas continues to trade at an historically low price relative to oil on an energy basis. As Warren Buffett likes to say, “Be fearful when others are greedy, and be greedy when others are fearful.”

Natural gas under $4 was a steal in April, and it’s even more of a steal now. Ignore the nattering nabobs of natty who worry on about inventory numbers; that’s all noise. Lift your eyes from your shoes to the horizon, and you’ll see that there’s only one direction that gas prices can go over the coming year, and that’s up.

Click to Visit "Who's Who?"

In all seriousness, Josh has an excellent array of financial bloggers out there who are noteworthy.  Even though many of them are well known by the mass, there are others I’ve never heard of.  This is an excellent source of information for all of you who are interested in discovering new blogs and the players behind them, and you can absolutely bet I would start doing more research using this list myself.

What I also enjoy about his blog aside from the “Who’s Who?” section is his articles that cover diverse topics.  While many of his posts cover financial related topics, he cleverly adds ‘personality’ to many of his posts (example).  When reading his posts,  it just feels more personable than reading some of the other financial blogs out there.  Don’t get me wrong, professional and informative blogs are invaluable.  On the other hand, it’s always good to have blogs like Josh’s in your RSS portfolio to keep your reads more fresh and interesting.   Most importantly, he has good contents.

Simple and sweet.  Definitely go check it out.

With this post, I aim to share the essentials tools I use to help me keep the edge in this fast moving market.  Here’s the day in the life of a part-time investor:

The Gears

• iPhone – This is by far one of my most important assets I use for trading on the go.  Not only do I use this tool for trading, I take full advantage of the application library it offers.
  1. Mobile Browser – I currently use Scottrade as my broker.  I’m thinking about going to Interactive Brokers or Think or Swim, but I haven’t quite made the move yet.  Mostly out of laziness.  Scottrade, however, does offer a mobile site that comes in handy when I’m looking at my positions on my iPhone.
  2. Tweet Deck – Tweet Deck is now available on the iPhone!! How else can I effectively access all of the key tweets mentioned on Stocktwits?
  3. CNBC – The mobile version of CNBC loads very quickly, extremely simple to use, and is REAL TIME.  It’s certainly one of my favorite tools for iPhone.
  4. Byline – Although it costs you a few bucks, it’s well worth the investment.  Byline RSS reader allows you to sync with Google Reader, and even cache all of the articles/images so that you can read all of your favorite posts no matter where you are without the internet!  Since I commute to work, losing internet connection from time to time, this is a must.

• Firefox or Internet Explorer – using the tab features, I separate my work related stuff with the investing related sites artfully.  By using CNBC’s real time quote feature displayed right on the tab of your browser, I manage to keep track of my prices real time without people even noticing!  Now that’s skill.

• Dual Monitor – If you don’t have a dual monitor as an active trader.  You failed. Go get one.
• Pidgin – If you haven’t heard of this chatting tool, you’re missing out.  Pidgin is a free instant messaging software that allows you to sync all of your IM accounts into one (Google Chat, AIM, Yahoo Chat, MSN, you get the idea).  I use this to chat with a few folks I trade with all the time.  I even had some IM exchanges with Quint from Tickerville.com and heard that he’s watching Master Card (MA) short.  What did I do? I actually looked at MA myself and decided to short it for a nice profit a few days later.

The Action

• 6:30 AM PST – I wake up to an annoying alarm every morning to start the day with Wall Street.  I log onto my computer with a 37″ LCD monitor and check how the market kicked off the day.  Sometimes if I have some trades that are exciting, I wake up extra early to check the pre-market and formulate some trading strategies.
• 7:30 AM PST – I leave home to work after making a few trades if I had chosen to do so.  Sometimes I make no trades.  Now, this is when my iPhone kicks in fully and I get onto my mode of reading investing articles, checking twitter messages, and so on.  I also handle my blog related businesses while I commute.
• 8:30 AM PST - Drink coffee.  That’s about the only significant part of the morning.
• Throughout the day I constantly monitor my screen while working to see where the market is headed.  If I’m tied up in meetings all day, I make sure to bring my iPhone with me so that I attempt to look busy checking my work emails on the go.
• 12:00 PM PST – It’s game time.  In my mind, the last trading hour is the busiest and most volatile hour of the day for Wall Street.  As I go grab my lunch, I’m keeping a close eye on the market to see what it’s doing.  Man does it get crazy sometimes.  How many times can you guys recall the last 30 min rallies and sell-offs this year? Just crazy.
• I pretty much work hard rest of the day until 6-7:00PM PST.  I’m a workaholic, I know.
• 7:00 PM PST – I start my 2nd job as a blogger.  This is when my real job gets going.  Checking emails, writing articles, interacting with others, reading articles, tuning up my site, and the list just goes on and on and on.
• Somewhere in between, I manage to keep my relationship with my loved one.  I don’t know how we do it sometimes, but I’m glad she’s supportive.
• 1:00 AM PST – Pretty much run out of gas and hit the sack.  At the end of the day, you feel pretty accomplished and fulfilled.

What makes you tick as an indivual? One thing I can tell you is….always go after something you are passionate about…because no matter how hard it gets, you feel fulfilled.

Share YOUR stories.  Email me and I will post them!

FINVIZ offers the fastest and the most advanced stock screener available online, interactive markets maps, innovative market analysis and market intelligence solutions.

The power of this tool is proven, as the site is used by many financial institutions and investors including: SAC, Merril Lynch, Goldman Sachs, JP Morgan Chase, Oppenheimer, Morgan Stanley, Charles Schwab, Bank of America, and the list goes on.

While I encourage you to go out there on your own and explore the features this site offers, here are some of the way I utilize FINVIZ to identify stock plays.  You can go to “Screener” page on the menu to get there:

• Biggest Gainers and Losers – I look at this section to identify potential stocks that made a huge gain/loss that day and are prepared to continue their trend for a few additional days.  I also see if the stock has recently reversed its trend and ready to develop a new trend.  I must warn you that the stocks on this radar are usually very volatile stocks like penny stocks, so be very careful when playing these stocks.  See example below on a multi-day rally after showing up on FIVIZ’s radar (biggest gainer):

• Unusual Volume – When stocks have an unusual volume on a particular day, it signals that something’s changed and future big moves (up or down) are likely.  A big news like bankruptcy, bio tech companies getting their drugs approved by FDA, you get the idea.  Whatever it is, I see it as a potential opportunity to play these stocks up and down.  Again, be very careful and set tight stops since the next few days or weeks will be extremely volatile.
• Insider Buying/Selling – FINVIZ has a whole page dedicated to the list of recent insider activities.  Many traders use insider buying or selling as a future indicator, so I go here to see if there is anything that comes to my attention.  I’m not too big on making my financial plays based on insider movements, but it is a useful way to confirm the reasons behind a certain price movement of a stock.  For example, if you see some unusual advancements in stock for no obvious reason (ie. no public news), it could be that there are some insider movements.  You can go to FINVIZ to confirm that.
• Various Technical Indicators - Double Top, Head and Shoulders, Triangle Ascending/Descending, and many other technical indicators are always important to note.  FINVIZ easily helps you identify them using the screener.

There are clearly many additional features you can use FINIZ for.  Again, spend some time digging and find your own ways to take advantage of this free and power tool.

Swing Trading Advantages and Disadvantages by David Waring @ informedtrades.com

Swing Trading Fibonacci Time Zones by Top Dog Trading (www.topdogtrading.com)

[There is a video that cannot be displayed in this feed. Visit the blog entry to see the video.]

How to Trade Breakouts by Top Dog Trading (www.topdogtrading.com)

[There is a video that cannot be displayed in this feed. Visit the blog entry to see the video.]

How to Find Support and Resistance by Craig from www.swing-trade-stocks.com

Find more videos like this on ChartWatchers

200 Day Moving Average on Hourly Charts by Craig from www.swing-trade-stocks.com

Find more videos like this on ChartWatchers

How to Use Candlestick Charts for Swing Trading by David Waring @ informedtrades.com