In short, a short squeeze is when prices rapidly rise due to a large number of buyers and very few sellers.
It is common sense, really.
Say everyone and their dog wants to live in some fancy neighborhood.
And homes in that neighborhood only go on sale every year or so.
We all know what happens to the homes that do go on sale: Prices are outrageous.
This is also true for stocks, indexes, and commodities.
Take cotton.
2010 – 2011 cotton was a textbook example of a short squeeze.
Prices went crazy for no other reason than there was a large imbalance of buyers and sellers.
The takeaway?
The number of buyers and sellers in a market can matter greatly.
Chart Source: TradingEconomics
