To answer that, let's take a look at the 130-minute chart.
Let's start at the left and work our way right.
LOVE ran into resistance at $29 twice this year, back in June and July, pulling back both times.
Naturally, traders who shorted the stock are going to have their stop-loss orders there. All we need is for the stock to break through $29 to trigger them.
That's where the next part comes in.
LOVE reported earnings that sent the stock from $21 to $27 in 24 hours, creating the upward thrust that defines the first part of my TPS setup, the TREND.
Since then, it's moved sideways in a consolidation PATTERN, inching its way closer to $29.
As it has worked its way higher, the range has narrowed, creating a SQUEEZE where the Bollinger Bands move inside the Keltner Channel.
Here's the question you're probably wondering…why do I think LOVE will break through $29 this time?
While I can't know anything for certain, here's my thought process.
First, the company reported earnings that the market liked, pushing the stock higher.
Second, the more times a stock tests a resistance or support level, the less likely that level is to hold.
Now, here's the kicker.
I'm fairly certain that short sellers have stop-loss orders at or near $29.
But what this chart doesn't tell you is the stock has a short float percentage of 27%.
This means that more than one out of every four shares available to trade has been sold short, which is quite a lot.
So, if LOVE manages to trip those stop-loss orders, it will likely cause a short squeeze, where one trader buys the stock to close his short position, sending the price a little higher and causing the next trader to do the same, cascading into a powerful tsunami of buying.
These short squeeze forces are so powerful that LOVE could rip higher even if the rest of the market is falling apart, making it a great setup for this kind of market.
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