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Watch for a Big Short Squeeze in Cleantech Solutions

There are several clear reasons why some stocks explode far higher than others. CleanTech possesses each of these short squeeze characteristics to a very high degree.

First, they tend to have very few shares outstanding. This creates a supply and demand problem. Shorts must buy back shares to cover, but there are simply not enough shares to buy. CleanTech only has 3.5 million shares outstanding. When small buying begins, it triggers very large moves in the stock.

Second, these companies have a fairly low public float due to large insider ownership. With CleanTech, around 40% of the shares outstanding are owned by insiders. Again, this reduces the supply of shares available which shorts must buy. For CleanTech, there are only about two million shares in public hands.

Third, the short interest is at an unmanageably high level relative to the float. With CleanTech, the short interest is roughly one-third of the float. When multiple shorts cover at the same time, it creates a squeeze. They have created enormous demand when there simply isn't enough supply. There are around two million shares in public hands vs. 600,000 shares sold short, which must be repurchased. This is astronomically high.

The result of these three factors is that the upside moves tend to be large and fast, while the downside moves tend to be slow and small.

How high can a squeeze take CleanTech? One thing that shorts would do well to remind themselves is that squeezes are entirely irrational. The ultimate peak has nothing to do with the fundamental value of the company. It is entirely driven by supply and demand.

The past squeeze of Taser puts the recent Tesla Motors squeeze to shame. About 10 years ago, Taser experienced a short squeeze. The low-priced stock initially ran to around $8. Many shorts felt it was overvalued. These shorts were quickly run over as the stock went to $20. More shorts piled in but the stock ran them over also as the microcap soared from $5 to over $135. It crushed just about anyone who had shorted it. The price of Taser simply had no connection to its value as it rose by more than 20 times.

Stock quotes in this article: CLNT, GURE, DQ, TSLA, TASR 

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