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Short Squeeze: Wednesday Market Recap.

  • Written by Syndicated Publisher No Comments Comments
    September 15, 2011

    Another fun day in the equity markets. With conviction among shorts mixed, some strong some not so and longs pretty much all in market action of late is a war but not your typical war. No longer bull versus bear it is now bear versus bear. Weak hands versus strong hands.

    Today the weak hands won. The recent rise in NYSE short interest as the following chart courtesy of ZeroHedge.com shows the fuel for a short squeeze has increased. Although off the 2009 highs it has risen. This needs to be kept in context though with the leverage among longs which is at fall 2008 levels.

    So rises in short interest can lead to squeezes just as rises in leverage can lead into cascading selloffs.


    Why do I say today was a short squeeze and not a true continuation of yesterday’s rally? Why was today not confirmation that a bottom was put in on Monday ahead of next week’s FOMC meeting? The price action in other assets classes does not confirm today’s equity rally. If this was real buying and not shorts capitulating you would not see the following.

    Copper – down 2% on the day. The bear flag pattern was broken on Monday, failed a backtest on Tuesday and put in new lows today.

    Oil – down 2% on the day. An already beaten down risk asset could not catch a bid today.

    Financials – GS, BAC, JPM, WFC, C although up on the day were well below the gains of the indices.

    Internals – Advancing issues on the composite today was 1443 issues. With equities up over 1% you would see advancing issues well above 2,000 and closer to 2,500.

    Bonds – The 10 year yield was up 1.7 basis points while the 30 year was down 1.6 basis points and the two year was flat. Bonds yields should have moved much higher on the day but they did not.

    Volume – Once again volume on up days simply cannot match that of down days. SPY volume the past three trading sessions (all sessions green) has been below the 50 day MA volume and below that of last Friday’s down day (which was above 50 day MA volume).

    Market Close – Lastly the selloff into the close showed lack of conviction among buyers as nearly half of the gains were erased over the final 30 minutes of trading.

    I continue to remain short and wait for that morning when I turn on my computer and see that the 3AM ES raid when all are asleep and few can respond has finally begun. Perhaps tonight, perhaps next month. I don’t know when but suspect it is soon and that is why I will remain short even though days like today can be rather frustrating.

    Images: Flickr (licence attribution)

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