I think we are going to get an opportunity to double-dip in profits. Once when the shorts explode and then when oil is proved. :D
I just posted the comments below over on IV. The quote comes from an article discussing short squeezes.
"Eventually, the stock will reach a point where a substantial percentage of the daily volume is short selling, and this is where the game becomes dangerous."
Ok so what is a substantial percentage? In the past cycle the short interest increased 9.16M shares in 11 trading days or roughly 833k shares/day. The total volume during that period was 54.27M shares or 4.93M/day, but that included the 20M Russell index day. If the shorting keeps pace, with the drop in volume and the lack of a big event day, we would surely see something in the range "where the game becomes dangerous."
To follow up on that for July 1 - 15
Number of trading days: 10
Total volume: 19,136900 or 1.914M/day
Looking at the shares out out on loan chart, there was an increase in the range of 5M. The gap between the shares on loan and short interest has also been widening pretty steadily. So it looks like we are seeing a short volume of 500,000/day or more. That would mean the percentage that is short selling is running at least 26% of the daily volume.