Here's Why ReShape Life Sciences Has An Opportunity To See A Big Short Squeeze

ReShape Life Sciences Inc RSLS shares are trading higher Monday after hedge fund Armistice Capital reported it had a 50% ownership stake in the company.

The stock was trending throughout the day on social media sites such as StockTwits. The stock trades with a small float of 500,000 shares and has a short percentage of the float at 28%.

ReShape Life Sciences was up 16.34% at $6.98 at last check Monday.

ReShape Life Sciences Daily Chart Analysis

• Shares are forming into what technical traders would call a pennant pattern.
• The stock is trading above the 50-day moving average (green), but below the 200-day moving average (blue), indicating the stock is likely facing a period of consolidation.
• The 50-day moving average may hold as an area of support while the 200-day moving average may act as a place of resistance.

Key ReShape Life Sciences Levels To Watch

• The pennant pattern began forming in early 2021 and may see a breakout within the coming months.
• The price will likely continue to be condensed between narrowing highs and lows until the stock is able to break above the pattern support or resistance and possibly see a strong move in the same direction.
• The Relative Strength Index (RSI) has been trading below 50 throughout the past week or so. The RSI looks as though it is beginning to start to move upwards and heads back toward the 50 mark on the indicator. If the stock can cross above 50 on the RSI it will mean there are more buyers than sellers at the time.

What’s Next?

Bulls would like to see the stock build its way up toward pattern resistance and move up on the RSI. Then bulls would like to see the stock breakout and make a strong upward push. The stock may need to move up on the RSI before this can happen.

Bears would like to see the stock dip down and fall below the pattern support. If the stock can cross below pattern support and continue to have an RSI that stays below 50, then the stock may follow with a strong downward push.