A strong bullish move in which new buys are supplemented by buy-to-cover orders on short positions. Many short traders set stop-loss limit orders above their short position entry price to protect against the unlimited loss potential if the share price goes up. Short trades are executed on margin, meaning traders borrow shares and pay interest to hold the position. When short interest becomes excessive, the position is over-leveraged, and shares become difficult to borrow. As buying interest picks up, short traders scramble to cover their positions and stop-loss orders get triggered. With enough volume and upward movement, a “cascade” of stop-loss runs leads to a fast, rapid price spike. Because of the potential for strong profits, many traders view heavy short interest as a bullish opportunity.
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