GigaCloud Technology (GCT -2.78%) stock is making big gains in Monday's trading. The company's share price was up 18.5% as of 2 p.m. ET, according to data from S&P Global Market Intelligence.
While there doesn't seem to be any business-specific news driving GigaCloud's share price higher, the stock appears to be benefiting from a short squeeze. The company's share price is now up roughly 64% over the last month, and it's possible that momentum will continue to send the company's stock higher in the short term.
Short sellers are feeling the squeeze
In September, Culper Research published a bearish note on GigaCloud stock. The short seller stated that GigaCloud exhibited "classic hallmarks of past 'China Hustle' implosions: Cayman incorporation, Chinese auditor, cash held offshore despite U.S. operations and USD financial statements, and very little interest income despite supposedly large cash balances." GigaCloud then published its own note rebutting the short-seller's claims.
On the heels of Culper's report and GigaCloud's response, both bulls and bears poured into the company's stock -- but short interest has risen over time. With the surge in bullish momentum that's taken place over the last month, short sellers have been incentivized to close out their positions -- or risk facing mounting losses.
In turn, this buying momentum has likely had the effect of pushing the company's share price higher and further incentivizing short sellers to cover their positions. This dynamic is known as a short squeeze.
What comes next for GigaCloud stock?
GigaCloud has attracted some attention as a meme stock, and investors have been buying up the company's shares in hopes of scoring explosive gains. Recently, the bulls have been coming out on top -- but investors should approach the stock with the understanding that trading could be highly volatile in the near term. When short-squeeze momentum peaks and recedes, those who bought late in the cycle can wind up facing big losses.
