Shares of Support.com (NASDAQ:SPRT) soared on Friday in an apparent short squeeze. By the close of trading, the technical support company’s stock price was up 33.7% after surging as much as 203% earlier in the day.
In March, Support.com made public its intention to merge with Greenidge Generation Holdings, a vertically integrated power-generation and Bitcoin (CRYPTO:BTC) mining company. Then in July, Greenidge Generation announced its plans to build a new carbon-neutral Bitcoin mining operation in South Carolina.
Investors’ interest in the merger appears to have ramped up ahead of Support.com’s special meeting of its stockholders on Sep. 10. A rally in Bitcoin’s price from its lows near $30,000 in July to roughly $49,000 today — as well as calls for more sustainable mining operations from companies like Tesla — also likely contributed to investors’ excitement about the deal.
While these factors no doubt played a part in Support.com’s gains, other dynamics are also at play. About 60% of Support.com’s float is held short, according to data analytics firm S3 Partners. But while many investors are betting against the company’s success, the surge in its share price has forced many short-sellers to close out or reduce their positions in recent days.
To exit their positions, short-sellers must buy back the shares they shorted. This forced buying on the part of the bears can help to accelerate a sharp rise in the price of a heavily shorted stock — and Support.com certainly fits the bill.
However, investors should note that short squeezes don’t last forever, and the upward price moves they bring about often reverse quickly. We’ve already seen evidence of this, with Support.com ending the trading day down more than 55% from its highs on Friday.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.
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