If you get squished then unsquished before the frame ends, you enter idle action state. Here, you can dive, ledge grab, or even jump in midair, even if you were diving, dive rolling out, ground pounding, getting knocked back by an enemy, etc.
To do this, you need to get squished by a slanted ceiling and/or floor (slanted by 60° or more), then the game will push Mario in the direction of the slant, the horizontal component of the Normal Vector, by 10 units or 2.5 units (if quarter frames apply) or less, based on De Facto Speed. If both are sufficiently slanted, ceiling slant direction takes priority.
If this Squish Push pushes Mario far enough to escape any ceiling/floor hitbox, Squish Cancel occurs. Else, you get Squish Downwarp.
Mario cannot enter the ceiling hitbox from the side or he will bonk. The ceiling squish spot needs to appear where Mario is, such as a ceiling coming down above Mario, or a spontaneous exposed ceiling (invisible wall).
A Squish Spot is where a floor and ceiling are less than 160 units apart vertically in some unit square.
When knocked back by a Bully, Squish Cancel allows Mario to transfer the Bully's speed into himself and keep it without it getting capped