Avis Budget Group, Inc. (NASDAQ:CAR) shares have gained more than 500% in less than a month. They now appear to be in a short-squeeze. Once a short-squeeze ends, shares tend to give back a big part of their gains. This is why Avis is the Stock of the Day.

If a trader believes that a stock is going lower, they borrow the shares from someone else and sell them. They hope to buy them back in the future, return them, and keep the difference.

This is called short selling.

Almost every stock has shares loaned to short sellers. It's typically only a few percent of the outstanding shares. This percentage is called ‘short-interest'.

The short interest of Avis is around 40%. This is extremely high, and any stock that has a short interest that is this high, is liable to go into a short squeeze.

Avis Technical Analysis

A short squeeze occurs when a heavily shorted stock starts to move higher. As the price increases, the shorts lose money. The higher it goes, the more they lose.

The stock can move significantly higher as nervous and impatient short sellers outbid each other. This can turn into a buying panic that makes the shares skyrocket.

The climax of the short squeeze comes when the people who loaned the shares to the short sellers see how high the price his risen and decide to sell. They call in the loaned shares.

The short sellers are forced to buy back the shares and return them. They have no choice. They have a legal obligation to buy them regardless of the price.

When this all ends, the squeeze can ‘unwind', and the price can drop rapidly. Sometimes it can even crash back to where it was when the squeeze began.

No one knows when the short squeeze in Avis will end. But when it does, there is a good chance the shares make a large move lower.

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