Cramer’s Stock Picking Secrets Revealed

When Insider Buying Meets Heavy Short Interest

Investors pessimistic about the future of a company’s stock can choose to engage in stock shorting, a tool that allows them to make money when a stock goes down. However, this strategy can be very risky.

Heavy short interest in a stock means a lot of people think the stock is likely to go lower. So if company insiders come in and start buying shares, it’s as if they are drawing a line in the sand to say the stock will fall no further.

“This is an explosive combination and one that often leads to a short squeeze that sends the stock much higher,” Cramer said. “Shorts are smart, but they usually don't know more about a business than the insiders who run it.”

So if a lot of people are shorting a stock, but then management starts buying sizable amounts of shares, Cramer thinks it’s time to do some homework because the stock will likely go higher.

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