Bulletin
Investor Alert

Nov. 2, 2019, 4:27 p.m. EDT

How to use a ‘short squeeze’ to your advantage in the stock market

Good examples have been the shares of Beyond Meat and Tilray

new
Watchlist Relevance
LEARN MORE

Want to see how this story relates to your watchlist?

Just add items to create a watchlist now:

  • X
    Beyond Meat Inc. (BYND)
  • X
    Tilray Inc. Cl 2 (TLRY)
  • X
    Tesla Inc. (TSLA)

or Cancel Already have a watchlist? Log In

By Nigam Arora


MarketWatch photo illustration/iStockphoto

What does fake meat and marijuana have in common? The commonality is that investors either made a lot, or lost a lot, of money on shares of Beyond Meat and Tilray.

Let’s explore how investors could make money on those stocks. First, check out these charts.

Please click here for an annotated chart of plant-based-meat stock Beyond Meat /zigman2/quotes/211617595/composite BYND -1.16% .

See: Beyond Meat stock falls despite earnings that show first profit in company history

Please click here for an annotated chart of marijuana stock Tilray /zigman2/quotes/209129655/composite TLRY +2.64% . For the sake of transparency, Tilray’s chart was previously published and is being republished without any changes.

Note the following:

• The big increases in both Beyond Meat and Tilray were the results of short squeezes, extraordinary pumps (pumps are usually followed by dumps), and the momo (momentum) crowd and mom-and-pop investors getting sucked in.

• There was no sound fundamental basis for the runup in either stock.

• Unfortunately as is often the case, Wall Street participated in the pumps in a big way, especially in Beyond Meat stock.

• There are not many things about the stock market that I can say with certainty even after over 30 years of experience. Investors are familiar with Arora’s Second Law of Investing and Trading: “Nobody knows with certainty what is going to happen next in the markets.”

• There are two things I know about the stock market with certainty. First, all short squeezes eventually end. The second: “Pumps” without fundamental support are often followed by “dumps.”

• In this twin certainty lies the edges that gives investors a consistent stream of profits.

• The chart of Beyond Meat stock shows that when the stock was hitting its highs, Arora’s call was to avoid the stock. I received a number of bullish emails on the stock comparing it to Tesla /zigman2/quotes/203558040/composite TSLA -0.58% . Please see “Beyond Meat is more like Tilray and less like Tesla.”

• The chart of Beyond Meat stock shows the Arora signal to short-sell the stock at an average price of $160. We give target zones and stop zones well in advance at the same time when buy signals or short sell signals are given. This way investors can plan ahead.

• Beyond Meat stock chart shows that our second target zone given in advance has been reached. The low band of our target zone for Beyond Meat stock was $80. As of this writing, Beyond Meat stock has traded as low at $80.10.

/zigman2/quotes/211617595/composite
US : U.S.: Nasdaq
$ 109.12
-1.28 -1.16%
Volume: 10.45M
Jan. 17, 2020 4:00p
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
$6.71 billion
Rev. per Employee
N/A
loading...
/zigman2/quotes/209129655/composite
US : U.S.: Nasdaq
$ 20.97
+0.54 +2.64%
Volume: 6.13M
Jan. 17, 2020 4:00p
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
$2.09 billion
Rev. per Employee
$62,689
loading...
/zigman2/quotes/203558040/composite
US : U.S.: Nasdaq
$ 510.50
-2.99 -0.58%
Volume: 13.63M
Jan. 17, 2020 4:00p
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
$92.02 billion
Rev. per Employee
$439,627
loading...
1 2
This Story has 0 Comments
Be the first to comment
More News In
Investing

Story Conversation

Commenting FAQs »
Link to MarketWatch's Slice.