What happened 

Shares of Sears Holdings Corp. (NASDAQOTH:SHLDQ) surged today on what appeared to be a short squeeze, as there was no direct news out on the company. The stock was up as much as 11% during today's session and finished with a 6.8% gain.

The exterior of a Sears store

Image source: Sears Holding.

So what 

Sears shares remain volatile as speculation about its future continues to swirl on Wall Street. While many believe the company is headed to bankruptcy, CEO Eddie Lampert and others have taken up a vigorous defense of the ailing retailer, which also owns Kmart. Board member and major shareholder Bruce Berkowitz said the Amazon.com-Whole Foods deal showed the value of physical retail and companies such as Sears, which remains one of the biggest retailers by square footage despite closing hundreds of stores.

More than three-quarters (76.4%) of the company's shares outstanding are now sold short, meaning more that many investors are betting on the stock to fall. Yesterday was the stock's lowest close since February, and the rally probably prompted a short squeeze, an event in which investors rush in to buy back shares of heavily shorted stocks, therefore pushing up the value even more.

Now what 

The underlying news for Sears remains almost entirely negative. It hasn't reported a full-year operating profit since 2010, and comparable sales continue to plunge. The company is shuttering hundreds of stores and keeps adding more to the list. Earlier this month, the company said it would cut 400 jobs, mostly at corporate headquarters, as it looks for ways to cut costs. 

Expect Sears stock to remain volatile, as it's mostly a speculative play at this point. With its shares heavily shorted and the threat of bankruptcy looming, I wouldn't expect today's rally to last.

John Mackey, CEO of Whole Foods Market, is a member of The Motley Fool's board of directors. Jeremy Bowman has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Amazon and Whole Foods Market. The Motley Fool has a disclosure policy.