What better way to put today into perspective than the following chart by Zero Hedge. Seems low volume holidays when the bond market is closed is a great opportunity to put a nasty short squeeze on. Today was tough but in 2008 it was about 4 times tougher with an 11% ramp.
Sentiment trader is also reporting today is the first day in the history of the SPY that it rose 3% or more on its lightest volume in a month.
This market continues to defy gravity. When it stops is anyone’s guess. Jumping in front of it because it seems like it is unsustainable is a dangerous game. One thing for certain though the selloff will be epic whenever that happens. Short squeezes in downtrending markets are vicious and the past five trading days now prove they can also be long.
At these levels most if not all shorts have capitulated and either gone flat or long. I imagine a few traders initiated long positions here and it is only a matter of time before they are wiped out as were new shorts last Tuesday afternoon before the “Dexia ramp.”
For now it is a waiting game. The market certainly is stretched here and at some point news will break that will be the “reason” for the selloff. The next Dexia is out there and as shown in 2008 they happen all at once. In the span of 8 days the US saw the bailout of AIG, the GSEs and the bankruptcy of Lehman Brothers. Dexia is just the tip of the iceberg. Below is an updated SPY intraday chart showing where we are at and comparing to similar patterns.
SPY -30 minute chart
Images: Flickr (licence attribution)
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