What happened

Wednesday is looking -- perversely -- like it's going to be another great day for some of the market's most-dissed stocks, with heavily shorted shares of BlackBerry (NYSE:BB), iRobot (NASDAQ:IRBT), and B&G Foods (NYSE:BGS) all rocketing higher in price on enthusiasm from momentum traders.

In 11:35 a.m. EST trading, shares of BlackBerry were up 19.9%, iRobot was up 19.6%, and even B&G Foods -- ordinarily a rather staid small-cap producer of breakfast cereals and canned veggies -- was up 15.8%.

Three colorful arrows racing straight up on a black background

Image source: Getty Images.

So what

So what's the good news that is driving these stock market gains?

Umm, well, to be honest, the most significant news in the group is of the bad news variety. This morning, analysts at Scotiabank downgraded shares of BlackBerry to underperform. The banker left its price target mercifully unchanged, but at $8.50 a share, it still implies something on the order of 60% downside for BlackBerry stock. Although the analyst sees "potential" in certain areas of the business, such as security software, Scotiabank calls the company's current stock price "overdone" and recommends that investors who have profited from the shares' tripling in price over the past two weeks take their profits and count themselves lucky.

Now what

Scotiabank might have similar advice for investors in iRobot and B&G Foods. Since Jan. 13, when this phenomenon of momentum traders on the "WallStreetBets" Reddit discussion board really caught fire, shares of iRobot stock have appreciated 69% in price. B&G Foods, a respectable business with fine profits -- but $1.8 billion in net debt -- is likewise up 60%.

What do these three companies have in common? Although differing in degree, they're all subject to large "short interest" on Wall Street -- professional traders borrowing shares in hopes of buying them back cheaper as the stock price falls, then pocketing the profit. At BlackBerry, short interest is currently 7% (elevated, albeit not extremely so), while short interest stands at 35.5% for B&G Foods and 36.5% for iRobot.

The more momentum traders bid up these shares, the more painful those short positions become for the professional investors shorting the stock and the more pressure they come under to close their positions (i.e., buy back the borrowed shares) -- a classic short squeeze that drives the price higher and puts all the other short-sellers under even more pressure.

This, in a nutshell, is the reason all three stocks are going higher today. When it will end is anyone's guess.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.