The Anatomy of a Short Squeeze

Good morning,

Welcome to today's edition of The Armchair Analyst, a 5-minute daily update on the ASX life-sciences sector.

Every momentum trade has a counterbalance.

It’s called a short.

A “bet” against a stock going up.

Here's how it works.

You borrow the stock from someone else. 

Sell it at today's price. Wait. 

If the stock falls, you buy it back at a lower price, return it to the lender, and pocket the difference.

If it goes up, you’ll need to buy it back at a higher price to “cover” the short.

That's the trade.

The catch? You can't short a stock if no one will lend it to you.

No borrow, no trade.

Today, I’m going to do a forensic dive into the shorting positions in 4DMedical (ASX: 4DX) to try and explain how this shorting process… 

Set up the company for a monster run.

Led to an $83 million capital raise that no one expected.

And a big reason for the ~50% fall in the share price since it topped out at $7.55 in March.

But first…

Amplia Therapeutics (ASX: ATX) initiates Phase 2b trial of narmafotinib in advanced pancreatic cancer with a daily dosing regimen. The first stage of a registrational trial. Patient enrolment begins Q4 2026. (ATX) 

🪑 Nice. Looking forward to this one.

BlinkLab (ASX: BB1) enters into a research partnership with Erasmus MC to evaluate therapy responses for a neurodevelopmental disorder like autism. (BB1)

Research on 4DMedical’s (ASX: 4DX) CT:VQ™ platform is published in a leading respiratory medicine journal and presented at ATS 2026 in Orlando. (4DX)

🪑 These papers are important for the adoption and utilisation of 4DX’s product.

Invion (ASX: IVX) will collaborate with SANGMYUNG Innovation to evaluate its technology in retinal vascular diseases. (IVX)

🪑SANGMYUNG will pay for all of the pre-clinical work. 

This is really the first out-licensing deal that IVX has done since it got its foot on a number of additional indications for the platform technology.

Adherium (ASX: ADR) presents new data from the Intermountain Health iCare study, showing the impact of its Smartinhaler technology on the healthcare system. (ADR)

🪑 When the company presented to me back in Feb, this study was super important. It was the precursor to “value-based contracts”. 

Let’s see if any of these land before the company runs out of capital again (burning $1M per month).

Island Pharmaceuticals (ASX: ILA) appoints US biodefence expert Mark Herzog as Senior Global Health Security Advisor. (ILA)

🪑 ILA was just about the only green stock in the healthcare sector yesterday. 

The boys at Next Investors wrote a piece on the company tying ILA to the current Ebola outbreak. World Health Organisation declares “Health Emergency of International Concern” 

Memphasys (ASX: MEM) appoints David Tasker as Non-Executive Chairman. (MEM) 

Report: Australia's R&D Tax Incentive for Biotech: Refunds, Reforms, and Outsourced Research. (Pipeline Bio)

🪑 Great report by Pipeline Bio on what the budget changes to the R&D tax incentives mean for the biotech industry.

The chart for 4D Medical (ASX: 4DX) is something that microcap investors can only dream of.

25 cents in July 2025.

$7.55 in March 2026.

4DX has developed non‑invasive lung-imaging software to generate four‑dimensional assessments of respiratory function from standard X‑ray and CT scans.

Earlier this year, the company did a monstrous $150 million raise at $3.80 per share.

At the time, I wrote about how the “crunch raise” the company did in February set it up for 2025, with an army of advocates that helped push the share price up.

Read: The Art of the Capital Raise 

As a sort of Part 2 to that article, I wanted to take a look at what has happened since the $150 million raise and how the company has structurally shifted.

There are three specific events that I want you to remember.

Key event 1: 4DX raises $150M in January

Key event 2: 4DX gets added to the All Ords. 23rd March 2026.

Key event 3: 4DX raises $83M on 27th March

Alright, let’s dive in.

Until 19 March 2026, short interest in 4DX never exceeded 0.6% of the issued capital. 

Why?

Because to short a stock, you first need to borrow it. 

What happens with a momentum stock like 4DX is that everyone who is long the stock is making money.

Hot stocks with conviction holders are unshortable. 

Not because shorts don't want to be there. 

But because no one wanted to lend out their stock.

What happened in March is that the Index funds showed up.

S&P announced 4DX's inclusion in the All Ords/ASX 300 in early March. 

Passive funds had to buy. 

And the thing about passive funds - they lend. 

Securities lending is one of the few ways an index tracker generates returns beyond its management fee. 

So, as Vanguard, BlackRock, State Street and the local ASX 300 trackers bought their stock to be ready for inclusion, they immediately put those shares into their lending programs.

The lendable float went from "trace" to "tens of millions" in a fortnight.

Watch what happened next:

Thu 19/03: 3.1M shares short. 0.55%.

Fri 20/03: 17.3M shares short. 3.02%. +14.2M shares overnight.

Passive buying on one side, shorts piling into the brand-new borrow pool on the other.

The shorts weren't suddenly more bearish on those days. 

The borrow simply turned on.

Now here is what the shorters didn’t expect.

Buyers kept piling in, and the existing shareholders stood their ground.

With added buying pressure from the index, short-covering, and the announcement that 4D Medical would be deployed at the Mayo Clinic, the shares rose to an all-time high of $7.55.

Here’s what happened next…

On the back of all-time highs, 4DX announced an unscheduled $83M placement at $5.90.

Even though 10 weeks earlier, 4DX had raised $150M at $3.80.

A 55% premium in 10 weeks.

Who's the reasonable long-only investor that participates at $5.90?

Not the January placement holders. They'd just topped up at $3.80 10 weeks earlier.

Not the value crowd. 4DX was trading at 600x revenue.

Not the deep institutional longs. They take weeks to do due diligence, not three days.

CEO Andreas Fouras told Capital Brief:

"I can absolutely tell you at the start of the week, it wasn't on the cards. The investors came to us and to Bell Potter in the last few days. There really has been no groundwork, no work to do this."

This wasn’t a long-only allocation.

But a short cover.

Shorts who'd loaded up on 20 March at ~$4.30 got smashed by the momentum traders and Mayo Clinic news. 

Suddenly underwater, couldn't cover in the open market without driving the price violently against themselves. 

Hat in hand, they came knocking on Bell Potter looking for a placement.

The placement gave them a clean exit at $5.90. 

The shares that were issued by the company could be used to cover the short position.

Still a loss against entry, but materially smaller than buying back 14M shares in an illiquid market at $6+.

4D Medical is happy to oblige. Another $83 million in the tin.

And then it happened a second time.

Three trading days before the ASX 200 inclusion on 20 April, shorts jumped from 9.5M to 22.6M shares.

Same mechanism. Same trade.

New tranche of passive buying, new tranche of borrowable stock, new tranche of shorts.

It didn’t work the first time, the shorters had to cover with an $83 million raise.

But now it seems the real long-term buyers have run out of steam, and the short sellers are taking over.

Short positions on 4DX are up to nearly 7% of the register…

So what does this mean for the retail investor in 4DX?

For the long-term holder, the bigger framing change is this.

2025 4DX was a speculative junior being re-rated as the catalyst path resolved. 

Each binary event removed a question mark, and the stock stepped up. 

Inclusion in the index brought passive investment and a liquidity event for microcap funds to crystallise gains.

That's how you get from 25 cents to $7.55.

2026 4DX is something different. 

It's a commercial-stage medtech with $283M in cash, a $2.4B market cap, and $5.8M of revenue.

From here, the price moves with execution, not narrative.

The cash matters, though.

Throughout it all 4D Medical has managed to pull in $230 million in capital to fund the scale-up of its business, with a balance at the end of March of $283 million.

This gives it a massive amount of runway to build real value in the business.

How will it play out from here?

Eventually, 4D Medical will need to start generating revenue from pilot programs to justify its $2.4 billion market cap. 

But for now, the marginal trading flow isn't being set by people with fundamental views; it's being set by:

Some of the key things I’ve learned from tracking the short positions in 4DX…

FIRST, Stocks that run quickly BEFORE being included in the index can benefit from a lack of short-selling pressure, since there is no one to lend the stock.

SECOND, Watch the short positions in these volatile stocks that have recently been included in the index; they explain a lot about the share price.

THIRD, If you see a funky capital raise in these $2B+ market-cap stocks, cast your eyes over the short position. It may be a short bet gone wrong, and someone covering.

This is just my theory of what happened, and some lessons to take along the way.

See you all tomorrow,

The Armchair Analyst

PS. I’ll be at the Digital Health Festival in Melbourne tomorrow and Thursday. If you’re there, feel free to come up and say hi!