The best short squeezes always start with a burst of momentum.
These moves are often sparked by a headline or news-related catalyst.
The price action in Peloton $PTON yesterday was an excellent example of this dynamic.
After reporting earnings Thursday, Peloton screamed higher and registered its best single-day performance in history.
While the report was nothing extra special, it was the first time the exercise bike maker beat on both the top and bottom line since May 2021.
When sentiment is this sour, sometimes "less bad" is all it takes.
PTON rallied 35% on the heels of the report, and with such a massive short interest, we think it's just getting started.
Here's the chart with the 1-day rate of change in the lower pane:
With extreme short-term momentum behind this stock, we think the squeeze is on.
Let's talk about how we're playing it.
Here's another look at the $1.7B fitness technology company:
Peloton is sporting a record-high 22.6% short interest along with a 6x days-to-cover ratio. This is shown in the lower pane, above.
Yesterday, the stock broke a multi-year downtrend line and closed at its highest price in 160 days.
Despite suffering a massive drawdown over the past 3-years, short sellers have continued to pile into PTON and are now carrying their largest short position in history. If the stock can build on this momentum in the coming days, we expect a rapid unwind in this extreme bearish positioning.
We only want to own PTON if it's above 4.50. We're targeting 7 over the coming 1-3 months and 17 over longer timeframes.
