5 Key Metrics for Finding Short Squeeze Candidates on the ASX
Learn the five data-driven metrics that identify potential short squeeze setups on Australian stocks. From days to cover to lending utilisation, here's what the numbers actually mean.
A short squeeze happens when heavily shorted stocks rise in price, forcing short sellers to buy back shares to limit their losses. This buying pressure drives the price up further, which forces more short sellers to cover, creating a self-reinforcing cycle that can produce explosive moves.
But not every heavily shorted stock squeezes. The difference between a genuine squeeze setup and a value trap comes down to data. Here are the five metrics that matter most - and how to use them.
1. Short Interest Percentage
What it measures: The percentage of a company's outstanding shares that have been sold short.
Why it matters: This is the foundation. Without a significant short position, there's nothing to squeeze. The higher the short interest, the more potential fuel exists for a squeeze.
How to read it:
| Short Interest | Interpretation |
|---|---|
| 0-3% | Normal levels, no squeeze potential |
| 3-7% | Elevated, worth monitoring |
| 7-12% | Heavily shorted, meaningful squeeze potential |
| 12%+ | Extremely shorted, high squeeze potential if catalysed |
Current context: On the ASX as of February 2026, 20 stocks carry short interest above 8%, and 7 stocks exceed 12%. The most shorted stock is Boss Energy (BOE) at 17.13%.
The trap to avoid: High short interest alone doesn't make a squeeze candidate. Sometimes stocks are heavily shorted for very good reasons - deteriorating fundamentals, accounting concerns, or structural decline. Short sellers do extensive research, and they're often right. You need the other four metrics to confirm the setup.
2. Days to Cover (DTC)
What it measures: How many days of average trading volume it would take for all short sellers to buy back their shares.
Formula: Days to Cover = Total Short Position ÷ Average Daily Volume
Why it matters: DTC captures something that short interest percentage alone misses: liquidity. A stock with 10% short interest and massive trading volume can be covered quickly. A stock with 10% short interest and thin volume creates a bottleneck - short sellers are literally competing for limited daily liquidity.
How to read it:
| Days to Cover | Interpretation |
|---|---|
| 0-2 days | Easy to cover, low squeeze risk |
| 2-5 days | Moderate squeeze risk |
| 5-10 days | Difficult to cover, elevated squeeze risk |
| 10+ days | Very hard to exit, high squeeze risk |
Why it's crucial: Imagine 100 short sellers all trying to buy back their shares after bad news for their thesis (good news for the company). If DTC is 1.5 days, they can all cover relatively quickly with minimal market impact. If DTC is 12 days, they're fighting over scraps of daily volume for nearly two weeks, driving the price up with each day of covering.
Pro tip: Days to Cover is most powerful when combined with high short interest. A stock with 15% short interest and 8+ days to cover is a genuine powder keg - the shorts are heavily exposed and can't exit quickly.
3. Short Interest Momentum (7-Day and 30-Day Change)
What it measures: Whether short interest is increasing, stable, or decreasing over recent periods.
Why it matters: The direction of short interest is often more informative than the absolute level. Here's why:
- Rising shorts + Rising price = Short sellers are fighting the trend and getting increasingly exposed. This is classic squeeze fuel - shorts are doubling down while the stock moves against them.
- Falling shorts + Rising price = Short covering is already underway. You may have missed the initial squeeze move, but the trend can continue.
- Rising shorts + Falling price = Shorts are winning. No squeeze setup here yet.
- Falling shorts + Falling price = Both sides are exiting. Low conviction environment.
The golden setup: Look for stocks where short interest has been climbing (shorts are building positions) but the stock price has stopped falling or started rising. This creates maximum tension - the shorts are committed but their thesis isn't working.
Current example: Flight Centre (FLT) has seen shorts increase from 10.11% to 12.98% over the past month, a +2.87 percentage point build. If FLT reports strong earnings or a positive travel demand update, those incremental shorts could be forced to cover quickly.
4. Price Momentum (5-Day and 20-Day)
What it measures: The stock's recent price performance, indicating whether momentum is shifting.
Why it matters: Squeezes require a catalyst that changes the price direction. Price momentum indicators show whether that shift is beginning. A heavily shorted stock with improving price momentum is far more interesting than one still making new lows.
The momentum shift signal:
- Stock has been declining (why it attracted shorts in the first place)
- Price stabilises and stops making new lows
- 5-day momentum turns positive while 20-day is still negative
- This crossover suggests a potential reversal is forming
Why both timeframes matter:
- 5-day momentum captures the very recent shift - is something changing right now?
- 20-day momentum provides the medium-term context - has the trend actually reversed?
When 5-day momentum is positive but 20-day is still negative, you're potentially catching the very early stages of a reversal. Short sellers who anchored their positions on the declining trend may not yet realise the setup has changed.
5. Fundamental Catalysts
What it measures: Upcoming events that could change the market's perception of the stock.
Why it matters: Data alone doesn't trigger squeezes - events do. All the short interest and technical setup in the world means nothing without a reason for the stock to rise. Short sellers are patient; they'll hold losing positions for weeks if they believe their thesis is intact.
Catalysts that trigger squeezes:
| Catalyst | Why It Works |
|---|---|
| Earnings beats | Directly contradicts the bearish thesis |
| Contract wins | Proves the business is growing, not declining |
| Clinical trial results (biotech) | Binary events that reshape the investment case overnight |
| Takeover bids | Puts a floor under the price, shorts face unlimited risk |
| Regulatory approval | Removes a key uncertainty that shorts were betting on |
| Guidance upgrades | Management sees better conditions than shorts expected |
| Insider buying | Directors putting their own money in signals confidence |
The timing element: The best squeeze setups have an identifiable catalyst approaching. Earnings season, regulatory decisions, and clinical trial readouts all create calendar-based catalysts where the stock's future will be fundamentally reassessed.
Important: Not all positive catalysts trigger squeezes. The catalyst needs to be strong enough to change the stock's trajectory, not just produce a one-day bounce. Short sellers will happily ride out minor positive news if their core thesis remains intact.
Putting It All Together: A Framework
Here's how to combine these five metrics into a practical screening framework:
Tier 1: Strong Squeeze Setup
- Short interest > 10%
- Days to cover > 5
- Short interest increasing over 30 days
- 5-day price momentum turning positive
- Identifiable catalyst within 30 days
Tier 2: Moderate Squeeze Setup
- Short interest 7-10%
- Days to cover > 3
- Short interest stable or increasing
- Price has stopped declining
- Potential catalyst approaching
Tier 3: Watch List
- Short interest 5-7%
- Days to cover > 2
- Any of the above momentum/catalyst signals
What Disqualifies a Candidate
- Short interest declining rapidly (shorts are already covering)
- Deteriorating fundamentals with no upcoming catalyst
- Very high daily volume relative to short position (easy to cover)
- Stock is in a clear structural downtrend with no reversal signs
The Risk Side
It's important to understand that short sellers are often right. Stocks are heavily shorted because sophisticated investors have done deep research and concluded the stock is overvalued or facing serious challenges.
Before betting on a squeeze, ask yourself:
- Do I understand why this stock is heavily shorted?
- Is my bullish thesis based on data, or just hope that shorts will cover?
- Can I afford to be wrong? Squeeze candidates can also crash if the short thesis plays out.
- Am I buying a stock I'd want to own even without the squeeze angle?
The best squeeze candidates are stocks where the short thesis is genuinely weakening, not just stocks where short interest is high. Use the five metrics above to distinguish between the two.
Screen for Squeeze Candidates
You can apply all five of these metrics using our tools:
- Squeeze Candidates - algorithmically scored squeeze potential
- Short Interest Screener - filter by short interest, DTC, momentum, and more
- Top Shorted Stocks - the most shorted stocks updated daily
- Movers - see where short interest is changing fastest
- Announcements - AI-analysed news with sentiment scoring for catalyst identification
All data is updated daily using ASIC's official short position reports (with the standard T+4 reporting delay).