Short Squeeze
A short squeeze occurs when there is a simultaneous decrease in supply and an increase in demand for a traded stock.
When this happens the price for the stock is forced upwards and traders who have sold off that particular stock (as they thought that it would decline in value) are forced to buy it back to prevent losses. This means that the stock price will again shoot upwards.
For example, imagine that supplies of milk were running out and that due to this lack of supply, the price per carton of milk rises to cover the loss in quantity. Farmers who had previously sold the milk to the supermarket chains would look to buy it back because they could make a greater return on it if they sold it themselves. These farmers would subsequently have to raise the price again in order to cover any previous losses they had incurred and the whole vicious circle would start again.
