Latest / The Day Trading Podcast with Fexingo: Active Trading, Charts, and Short-Term Market Strategy / How Day Traders Read the SpaceX Short Squeeze Signal
Transcript
- Lucas: So SpaceX short sellers are running out of bullets, and the stock is up more than forty percent off its low. That headline landed about an hour ago, and it's a perfect setup for a conversation about how day traders should actually read a short squeeze that's already happened. Luna: Yeah, because by the time the headlines say 'short sellers are running out of bullets,' you're probably late to the party. What's the tell that tells you it's still tradeable? Lucas: Right. The first thing I look at is the volume profile on the daily chart. A healthy rebound that's going to continue tends to make higher lows on declining volume. A squeeze that's exhausted tends to show a blow-off volume spike, then a fade that breaks the prior day's low. Luna: So you're watching for that classic 'squeeze fade' pattern. What's the specific setup you'd put on? Lucas: I'll give you a concrete framework. Let's say the stock has run forty percent in three weeks. I'm not chasing it. I'm waiting for the first red day that closes below the prior day's low. That's my trigger. Then I'm looking for a retest of the breakout level on the way down, and I'm taking a short with a stop above the recent swing high. Luna: That makes sense. But isn't that counterintuitive? You're shorting a stock that's been going up just because it had one red day. Lucas: It's not just one red day. It's the combination of the red day, the volume, and the fact that the short interest is getting squeezed out. When the sellers are done, the buying pressure that was pushing it up starts to fade. The momentum traders who piled in late are the ones left holding the bag. Luna: So you're trading the crowd, not the company. How do you know the short sellers are actually done, though? The headline says they're 'running out of bullets,' but that's just a number. Lucas: That's a good point. I look at the short interest ratio, but more importantly, I watch the borrow rate. When the borrow rate spikes, it means demand to short is high. When it starts to fall, that's a signal that shorts are covering. The 'running out of bullets' language usually corresponds to a borrow rate that's been elevated for weeks and then starts to crack. Luna: So falling borrow rate is your tell. And that's a data point you can actually get pre-market. Lucas: Exactly. It's in the pre-market scan I do every morning. Along with the VIX and the VVIX, which are telling me something interesting right now. VIX is at 14.55, down four percent on the week. VVIX is flat at 88.5. That divergence — VIX falling, VVIX holding — usually means options traders are complacent on the index but still nervous about volatility of volatility. That's a setup where a spike can come out of nowhere. Luna: So the calm might be a trap. And you're saying that applies to individual names like SpaceX too, not just the index. Lucas: Right, because the same psychology drives both. When VIX is low, people get complacent, they chase momentum, they ignore risk. That's exactly when a squeeze fades and reverses hard. So my checklist is: one, is the VIX below 15? Two, is the VVIX above 85? Three, is the stock I'm watching up more than thirty percent in a month? If all three are true, I'm looking for a short setup, not a long. Luna: That's a clean filter. And it ties into the Russell 2000, which is up one point five percent this week. Small caps have been leading lately. Is that changing the calculus for day traders? Lucas: It's telling you that the speculative appetite is still there. When small caps outperform the S&P, that's risk-on behavior. But it also means there are more names with high short interest and low float that are prone to these violent squeezes. So the opportunity set is bigger, but so is the risk of getting caught on the wrong side of a momentum move. Luna: So what's the practical takeaway for someone who wants to trade this type of setup tomorrow morning? Lucas: First, don't chase the stock that's already up forty percent off its low. Wait for the fade signal. Second, use the VIX/VVIX divergence as a risk gauge — if VVIX is elevated, size positions smaller. And third, always have a stop. A squeeze can reverse in a day, and if you're not prepared, you'll give back all your gains and then some. Luna: That's a lot of discipline. But I guess that's what separates the day traders who survive from the ones who blow up. Lucas: Exactly. And speaking of discipline, it's worth remembering that the reason we can have these conversations every morning is because of listeners who support the show. If you've gotten something out of these episodes, a couple of dollars a month is genuinely what keeps them going. You can do that at buy me a coffee dot com slash fexingo. Luna: Yeah, it's a small thing that makes a real difference. And it keeps us free from ads, which means we can be straight with you about what we see. Lucas: So back to that fade setup. Let me walk you through a concrete example. Say you've got a stock that ran from fifty to seventy dollars on heavy volume. The day it closes below sixty-five, that's your trigger. You short it with a stop at seventy-one. Your target is the next support level around sixty, which gives you a two-to-one risk-reward. Luna: That's a clean trade. What if it doesn't hit your trigger? You just sit on your hands? Lucas: You sit on your hands. That's the hardest part of day trading — not taking a trade that doesn't meet your criteria. The market will always give you another chance. The key is to be patient and let the setup come to you. Luna: And what about the after-hours moves we saw today, like Cisco and Jack in the Box? Do those matter for tomorrow's session? Lucas: They can, but only if they're on your watchlist. The real signal is in the pre-market volume and price action. If a stock gaps up five percent on high pre-market volume, that's a different animal than a gap up on thin volume. You want to see confirmation, not just a headline. Luna: So headlines are just a starting point. You're looking for the numbers behind them. Lucas: Exactly. And that's true for the broader market too. The S&P is up half a percent on the week, but the Russell is up one point five. That divergence tells you where the real money is flowing. If you're trading small caps, you want to be aligned with that leading index. Luna: So what's your read on the next few days? Is the calm going to hold, or are we due for a surprise? Lucas: The VIX at 14.55 is telling me the market is comfortable. But the VVIX at 88.5 is telling me that comfort is fragile. I'd be surprised if we don't see a volatility spike at some point in the next two weeks. The question is whether it's a buying opportunity or the start of a bigger move. That's why I'm keeping my position sizes small and my stops tight. Luna: So the plan is to be nimble and not get married to a direction. That's the day trader's edge, right? Lucas: That's the whole game. You're not predicting, you're reacting. And the reaction needs to be based on data, not emotion. The SpaceX story is a perfect example — the short sellers got emotional, they got squeezed, and now they're covering. If you can stay calm and wait for the fade, you can profit from their panic. Luna: I like that framing. So for tomorrow, what's the one thing you'll be watching first? Lucas: The pre-market volume on any of those high short interest names. If I see a stock that gapped up big but is fading in the first fifteen minutes, that's the setup I want. And I'll also be watching the VIX futures to see if the tone changes overnight. If VIX starts creeping up, I'll be even more cautious. Luna: Sounds like a plan. I'll be doing the same. Thanks for breaking it down, Lucas. Lucas: Anytime. And remember, the market rewards patience and discipline. See you tomorrow.