Editor's note: As part of our partnership with Nightly Business Report, TheStreet's Bob Walberg appeared on NBR Monday (see video and transcript here) to look at stocks with short-squeeze potential this earnings season.
NEW YORK (TheStreet) -- Europe's a mess, Chinese growth is slowing down faster than expected, the domestic recovery is in its infancy and we are about to enter a traditionally slow seasonal period for the market. It's no wonder investors are selling stocks. But there's a big difference between selling to lock in gains or to shed a loser and selling short.Selling short means that an investor borrows stock to sell at today's price, with the intention of buying it back in the future at a lower price. The short investor is betting that the price of the stock in question will decline. However, if the price of the stock should go up instead of down, at some point that investor will be forced to buy back his stock to limit his loss. Naturally, the more people are forced to cover their positions on the way up, the more the buying pressure will propel the stock higher. This action is what is commonly referred to as a "short squeeze."