What happened
Shares of GSX Techedu (GOTU -7.59%) are soaring nearly 29% higher in midday trading as the Chinese remote education specialist rides the short squeeze wave hitting other heavily shorted stocks. It's different from why it soared last week.
So what
Over 22% of GSX stock is sold short, giving it a short interest ratio of almost 14 days (anything over seven days is considered a lot). While that indicates short-sellers are getting squeezed, or being forced to cover their positions at ever-higher prices, it's more just a phenomenon flooding the market at the moment.
Image source: Getty Images.
Of the 148 stocks with 20% or more of their sales sold short, 115 of them (77%) are trading higher today, a day when the broad market indexes themselves are tumbling by several hundred points. Even more notable, fully one-third of the heavily shorted issues are up by double-digit percentage rates today.
Now what
The high volatility is common in these situations, but because the trading action is divorced from the company's fundamentals, it is a fleeting trend that can't last. Eventually the short-sellers cover their positions and the stocks return to earth, often just as dramatically as they soared.
Investors shouldn't be swayed by these price swings, and investors would be smart to sit on the sidelines until GSX Techedu sorts out the battle taking place between short-sellers and those long on its stock.
