Peabody Energy Corporation (OTCMKTS:BTUUQ) Looks Set For Another Squeeze

Peabody Energy Corporation (OTCMKTS:BTUUQ) energy has been one of the most unusual activity stocks on the market across the last few weeks. The company is currently going through Chapter 11 restructuring, and there is every chance that it's stock will be essentially worthless once – if – it emerges from the process with any assets on hand. Despite this, buyers are still willing to get in and out on a potential reversal, and with fundamentals shifting in favor of the company pulling through, this enthusiasm has only increased. Mid-October, Peabody went for a little over $1.5 a share. On October 24, the company traded for $16 a share, and has since corrected to what many are looking at as a more reasonable $8 a share.We have covered the company as it has logged its ups and downs, and we have been on the money as far as our interpretation is concerned on each occasion. The time has come to ask ourselves again, what is next?Let's try and figure it out.First up, a quick recap as to what's going on.The company filed for bankruptcy earlier this year, as coal prices from the previous 12-month decline and the company's debt became too much of a burden. The primary driver behind this debt was the 2011 takeover of Australia’s MacArthur Coal Ltd. The latter is one of the leading global producers of metallurgical coal – one of the key ingredients in steel production. The takeover came by way of debt issue, but shortly after close, the price of metallurgical coal started to crash. As price went down, equity value went down, and the value of the assets acquired through the $4 billion debt issue collapsed in parallel.Over the past 12 months, however, the price of metallurgical coal has increased dramatically. China has declared it is limiting output, and the price increase has had a marked effect on Peabody's asset valuation.This increase has led some to forecast a potential ability to service its $8 billion debt organically, and therein lies the thesis behind a buy and hold right now.That's an interesting view, and one that certainly holds more water today than it did just a couple of weeks ago. It is not this thesis, however, that is driving the gains we have seen over the last few weeks.Instead, what we are seeing is a classic short squeeze.The squeeze came on the back of Mangrove Partners Fund announcing a 5.2% stake in Peabody, something we addressed last time we looked at the company. The news that the fund not only had confidence in the company's equity, but that it was looking to push through the approval of an equity committee, sent shorts running for the hills, and price from strength to strength as these shorts covered.We see potential near-term forces coming together to replicate the recent upside, and, in turn, boost Peabody further.Specifically, we think there is another short squeeze on the cards, and that the catalyst behind this squeeze is going to be Mangrove getting an equity committee approved and at the table come asset dole-out time. An equity committee could pretty much invalidate the company's previous comment about the potential for shareholders to be left holding worthless equity.At last count there were around 24 million shares short. We think around two thirds of these have had the chance to cover, max. That's still another 8 million sweating it out, all of which will likely be forced to cover if another catalyst (read: an equity committee instating) kick starts another run.The company is still a risky play, but there are going to be plenty more opportunities to profit from the waves of volume trading in and out as the restructuring takes hold.We’ll stick with it and see how things play out.We will be updating our subscribers as soon as we know more. For the latest updates on BTUUQ, sign up below!Disclosure: We have no position in BTUUQ and have not been compensated for this article.