In market cycles, there are moments when price action stops following logic and starts feeding on emotion. These moments often come during sharp rallies, especially when short sellers are forced to cover positions, fueling what’s known as a short squeeze.

Right now, the market appears to be in a phase that shares traits with past periods where gains extended further than many expected. And while valuations, sentiment, or macro headlines might tempt some to bet against the rally, history suggests that momentum-driven moves can last longer—and climb higher—than most anticipate.

Understanding the “Upside Pain” Phenomenon

When traders talk about “upside pain,” they’re describing a situation where those positioned for a market drop are forced to buy back in at higher prices to limit losses. This rush to exit short positions doesn’t just slow a decline—it can accelerate a rally. The result: rapid price surges that leave both short sellers and hesitant buyers scrambling.

This is the emotional paradox of a squeeze:

• Short sellers feel pain as prices rise, prompting them to cover positions.
• Latecomers feel fear of missing out, prompting them to chase prices higher.
• Existing longs often hold tighter, seeing confirmation of their bullish view.

The combined pressure can create a feedback loop that keeps driving prices beyond fundamental expectations.

The Setup for an “Extra” Squeeze

In some cases, a squeeze doesn’t just happen once. An initial surge can burn many short positions, but if new shorts pile in thinking “this rally has gone too far,” a secondary squeeze can ignite, pushing prices even higher.

A second leg up often catches traders off-guard because:

1. Sentiment Shifts Slowly – Many still cling to the belief that the rally is unsustainable.
2. Liquidity Conditions Matter – Easy credit or large cash reserves give more fuel to buying activity.
3. Technical Breakouts Amplify Momentum – When prices clear key resistance levels, algorithmic and discretionary traders alike jump in.

The market doesn’t just move to a fair value—it overshoots, and in the case of a squeeze, it overshoots with speed.

Why the Risk Is to the Upside (For Now)

While nothing in markets is guaranteed, certain technical and psychological markers suggest the potential for further upside remains. Price momentum is strong, sentiment among skeptics remains high, and there’s still a notable short interest in select sectors. This means that if bullish momentum continues, the “pain trade” could still be higher, not lower.

For traders, this doesn’t mean buying blindly—it means recognizing that fighting a squeeze is a dangerous game. Risk management becomes paramount, and timing matters more than ever.

In the same way markets can fall further than seems reasonable during a panic, they can also rise far beyond what feels rational during a squeeze. When emotions, positioning, and liquidity align, prices can run hot—sometimes much hotter than anyone expects.

The key lesson? In momentum-driven markets, disbelief can be just as costly as overconfidence.