What the H- is a Short Squeeze? (Vol. 9)
I promise we're almost to the finish line of my vacation.
Dear Fellow Traveler:
Imagine being eight years old.
An older kid comes up and asks you if he can borrow your bike.
You let him…
But instead of riding your bike, he sells it to someone else.
He promises to buy you a better bike when bike prices go down.
You agree…
However, bike prices go up, and now he has to find a way to buy you a bike at higher prices.
That’s basically how a Short Squeeze works.
But in Wall Street terms, the kid was a hedge fund, the bike was GameStop stock, and his lunch money was... not enough to cover the losses.
A Reverse Heist
Short selling is wild.
It’s a process of borrowing something you don't own, selling it immediately, and then hoping to buy it back at a lower price later.
Let’s say you borrow 100 shares of AT&T (T) from your broker, sell them for $27 each, pocketing $2,700.
You're betting the stock will drop to $20.
Then you'll buy 100 shares back for $2,000, return them to your broker, and keep the $700 difference.
But what if AT&T announces they've cured cancer and signed a deal with NASA?
Suddenly, those shares are worth $60 each.
You still owe 100 shares, but now they cost $6,000 to buy back.
You just lost $3,300 on a $2,700 bet.
That's the fear of short selling…
Your max profit is capped (stocks can only go to zero), but your losses are infinite.
David Can Now Kill Goliath
A larger short squeeze occurs when short sellers become trapped in this nightmare, amplified by market mechanics.
When heavily shorted stocks start rising, short sellers panic and try to buy shares to "cover" their positions.
But their buying pushes prices higher.
This forces more short sellers to cover, which pushes prices higher still.
It's a feedback loop of financial pain that can turn a modest stock rally into a rocket ship.
Back when I was thinner… the classic example in 2008 was Volkswagen.
A surprise announcement briefly made it the world's most valuable company.
Hedge funds lost billions in days.
But the same issue happened in 2021.
This time, it was retail traders on Reddit who discovered they could weaponize short squeezes against Wall Street.
GameStop was a retailer that was supposed to die quietly.
It was a brick-and-mortar video game retailer bleeding money.
Short sellers saw easy prey and piled on, shorting more than 100% of the available shares. Yes, people who borrowed the stock to short it then lent it to others who also wanted to short it…
Enter r/WallStreetBets…
A chaotic Reddit community had noticed something interesting.
If they all bought GameStop stock at the same time, they could trigger a massive short squeeze.
What started as financial vigilantism turned into a cultural phenomenon.
Retail traders, armed with Robinhood accounts and stimulus checks, declared war on hedge funds.
The results were unreal… something that never happened before in finance…
GameStop's stock price went from $20 to nearly $500 in just weeks.
Melvin Capital lost billions and needed a bailout.
Other "meme stocks" like AMC joined the party.
For many retail traders, it wasn't just about money.
It was really about sticking it to Wall Street.
Chaos Engine
Short squeezes create incredible swings in price action because they break normal supply and demand rules.
Usually, when stock prices rise, some investors sell to take profits.
But in a short squeeze, the people who most want to sell (short sellers) are forced to buy instead.
Imagine a fire drill, but in that case, everyone must run to the fire.
When short interest exceeds available shares, you get a mathematical powder keg waiting for a spark.
Add in options trading, and you're watching financial physics break down in real time.
When the Music Stops
We know that short squeezes can't last forever.
They're driven by forced buying rather than genuine demand.
Eventually, short sellers either cover their positions or get liquidated.
The buying pressure disappears.
Retail traders take profits.
Gravity returns.
GameStop stock hit $483 in January 2021.
It's been trading mostly between $10 and $30 since then.
Even in this year’s rebound, the stock is still down about 25% in 2025.
The squeeze was spectacular, but temporary.
For most investors, they're something to watch from a safe distance.
For short sellers, they're nightmares that can wipe out years of gains in hours.
And for Reddit traders?
They're proof that sometimes the house doesn't always win.
Just remember: for every short squeeze that makes headlines, there are dozens of failed attempts that bankrupt retail traders who thought they could time lightning.
The optimal time to attack typically aligns with when we see a big amount of capital flow back into the markets… which means that it’s best to look for opportunities when our signal turns positive after a period of dormancy, after several weeks.
Stay positive,
Garrett Baldwin
Short squeezes are our best friends in this market.
Ya think I need some help here? From Rails to Robotics: A Historical Arc of American Industry and Dow Theory
The Age of Railroads (Early 1800s–Late 1800s)
The industrial awakening of the United States began with the expansion of railroads in the early 19th century. The completion of the Transcontinental Railroad in 1869 unified east and west, creating a national market. Railroads revolutionized transportation, cut costs, and dramatically sped up commerce. Dow Theory, later articulated by Charles H. Dow in the late 1800s, took cues from the interplay between railroads (transportation) and industrial production, suggesting that when both sectors rose together, economic expansion was underway.
Electrification and Mass Production (1880s–1930s)
Electrification reshaped American industry. Utilities grew, and electrified factories boosted productivity. Simultaneously, Henry Ford’s 1913 assembly line revolutionized automobile production, setting new standards for efficiency. Electrification also extended to homes, changing labor patterns and consumption habits. Dow Theory matured in this period, tracking the industrials and transport indexes to anticipate economic cycles.
Agricultural Shift and Mechanization (1930s–1950s)
The Dust Bowl and Great Depression accelerated rural-to-urban migration. Mechanized farming (tractors, combines) displaced millions of agricultural workers, driving them into cities. Companies like Caterpillar thrived, producing equipment essential to infrastructure and farming transformation. Electrification expanded via New Deal programs like the Tennessee Valley Authority (TVA), bringing power to rural areas and fueling industrial growth.
Post-War Manufacturing Boom and Decline (1945–1971)
America emerged from World War II as an industrial giant, holding more than 50% of global manufacturing capacity by 1945. U.S. aid programs like GARIOA (1946) and WEECA (1948) aimed to rebuild Europe and create demand for American goods. The manufacturing sector peaked through the 1950s and 60s, but global competition and rising labor costs began eroding dominance. Dow Theory remained a key analytical tool on Wall Street, interpreting transport-industrial correlations amid a changing world economy.
The Gold Standard Exit and Exporting Inflation (1971–2000)
In 1971, President Nixon ended the dollar’s convertibility to gold, effectively dismantling the Bretton Woods system. This unshackled U.S. monetary policy and triggered inflation. Corporations, facing high domestic costs, began offshoring production, particularly to Asia. Manufacturing in the U.S. declined steadily, while imports surged. The U.S. began exporting inflation—outsourcing production while maintaining consumption.
The Silicon Age: From Microchips to Moon Landings (1958–1990s)
In 1958, Jack Kilby invented the integrated circuit, launching the modern computing era. The U.S. raced to the Moon with Apollo missions, leveraging advanced aerospace manufacturing and early computing. The digital revolution began to reshape labor needs, emphasizing technical skills and phasing out traditional manufacturing roles. Dow Theory struggled to track these non-industrial shifts, as software and semiconductors didn't fit neatly into its original framework.
21st Century: Automation, AI, and Reshoring (2000–Today)
The 21st century introduced another paradigm shift—automation, robotics, and AI began displacing human labor across industries. Global shocks like the 2008 financial crisis and COVID-19 disrupted supply chains, reigniting interest in **resh