On the one hand, everyone I know is short. And everyone on the sideline wants to short. So clearly a crowded trade right? One that could easily become the shadow demand for equities on any dip, only propelling them higher, right??
Well, yes and no. Crowded shorts could raise prices, though that ignores the effect of the value : price spread.
And it makes less sense if you consider every 1m shares short is 1m shares someone is 'artificially/additionally' long. Shares HELD by A are shorted by B to the buyer C. C will sell long at some point and B will buy short. The only reason this should have any effect is the velocity of the shares coming to the market. Right?
So, it 'could' keep 'crowding higher', EXCEPT that the numbers seem to point to a low level of short interest.
As beleaguered as the bear crowd must feel, the truth eventually hits. The only thing to be mindful of, is the chance the bears could be wrong.... and the truth might already be out (ie, V shaped recovery.) Maybe.
Lastly, the market is at yet another crossroads since a break above 1072 or a break below 1040/1035 will likely dictate the mid-term direction to follow.
To torture the Charlie Brown analogy even more: Charlie is about a foot from the ball and Lucy looks like she had no intention of pulling the ball away. Looks like.
3 comments:
Generally when you start getting significant intraday and intraweek volatility the market is getting ready for a major trend change. We saw this in mid 07, March 09 and now.
Plus add the fact that I shut down shop and this market is ready to go the bears way hard!
Another pattern for you -
None of the big down months since Summer 2008 have started with bad day 1s. In fact, if you bought the close of a bad day 1, you would have found yourself up at around 10% at some point later those months (Sept 09, March 09, December 08).
So I'm not rooting for a big down day toady. Tomorrow and every other day, I will.
ok, clearly we are not going to have a "benign" day. So at today's close, we will have a:
1). Big down day on day 1
2). A deeply oversold, McClellan indicator
3). A "breakout" on the VIX
Those 2 combinations (mainly the last 2) have been how the bulls always take it to new highs.
Tomorrow is the unemployment number. If we close weak today, they will bounce hard off that tomorrow - regardless of the report.
The million dollar question will be this - does this rally fail by Tuesday morning and do we break today's lows? If the answer is yes, this rally is officially over. If not, then let's get ready for 1100!!
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