You've probably heard of the saying 'Buy on the rumor, sell on the news.' A similar statement could be made about shorting stock: 'Sell on the rumor, buy back on the news.' A perfect example of this is the Dell stock.
A couple months ago, news came out that a Dell laptop caught fire at a Japanese business conference. That was the time to short the stock, when rumors started about possible Dell recalls. The stock drifted down from a price of 26 at the beginning of June. That was the time to short. The stock dropped all the way down to 21.24 yesterday, when the Dell battery recall news came out.
So what happened today after the market opened? The stock opened at 17 cents higher than yesterday's close. It continued upward throughout the day and closed up 4%!!! Those who though that Dell would drop today after yesterday evening's news got squeezed. Remember, short on the rumor, cover your position on the news!