Monday, October 5, 2015

Stairs Down Elevator Up?

It is an atypical stock market.  The rallies come quicker and swifter than the selloffs.  The Friday reversal was mythical.  Like a phoenix rising from the ashes.  Actually, it was just a lot of shorts caught offsides and panicking out of their positions.  The most heavily shorted stocks went up the most on Friday.

We are getting more short squeeze today, and the market went straight up off a gap up open, giving shorts no opportunities to cover lower.  What is so frustrating about these type of markets is that you go straight up, flat line for a bit, and then go straight down.  Good for trend followers, but horrible for counter trend traders.   And the rallies are quicker than the selloffs!  It is not normal, as stocks usually should go down faster than they go up.  What this type of activity tells you is that most of the  selloff was caused by a lot of hedging and short selling, not real cash selling.

What you are seeing is the unhedging and short covering, and it happens quickly, because the fund managers can't lag the averages, and FOMO plays a big part in their actions.

We are close to resistance here around SPX 1980-1990.  I would be surprised if we kept going up, but am not interested in testing that gut feeling by shorting. I have gotten out of longs and will wait for the next pitch.  The easy part of the post crash trading is now over.  As traders get more comfortable and less emotional, the trading becomes more unpredictable.

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