Despite the calm rebound on Tuesday, our feelings that evening were SPX1K is seemingly ‘oceans away’. Maybe, it was the overwhelming bearish noise that was circulating after the gap down, but as we said early this week, we should trade by our ‘ guts’..first and foremost and not to be drawn by daily market action or in this case noise!. We have to keep an openmind and think things through. By morning with SPX futs down 10 and erasing the rebound, we were looking at things a little differently. Mostly, because we were never bearish since March and so why are we being swayed with the tide in a day or 2.
One thought was about ‘oceans away”..is it really in this market?. What’s 10 points, 15 points as in premkt to 1K to this crazy market?. Hell..10-15-30 pts is a day in the park and it can be erased within hours or a day as this market is overzealous with 2 things now. We still have (PA) performance anxiety managers/ retail who want to be the underlying bid and we have shorts now rubbing their hands at the opportunity to short more than we've seen in months. So, we woke to an article stating the big SPY put action and “Bearish” headline and thought this is probably an opportunity to a squeeze coming. Why?. Well, we all know the Financials are a key and considering they are holding steady and had good news early this week, this combo with eager shorts may simply lead to a squeeze. Even though we said ..“one day soon”, we wouldn’t have posted 10 am, if that one day didn’t include today. It was funny to see media such as Breifing.com still scrambling for an answer to the squeeze a few hours after we posted..a regurgitated 2nd stimulus idea was the first, a dollar decline followed..etc. That’s all hogwash really, it’s purely based on market participant psychology, a squeeze that has no immediate explanations (catalyst) is always a 'short cover' move. Your first understanding of this is when you look at your watchlist and see minimal gains or even still losses across the board. If your list is spread from financials to commods to techs, you can easily see this play out. Even energy related plays after a bullish morning number were hardly up. So, if the SPX is leading as it did today, it’s a short covering move. We’ve been talking about shorts needing to go higher to lay down shorts because 982 was not a place to start. Remember, just below 990 SP ES had stops hit. Well….what better place for shorts to start again. Tuesdays trade provided some opp' to do this and so once we hit this area today, it was off to the races. We noted shorts after being burnt last week are still vulnerable to upside risks and they know it. They hurry to get out like today.
Anyways, this market is becoming a roller coaster as sentiment is switching seemingly on an hourly basis. Since Friday, we’ve led you to 3 separate bounces here stating reasons why it was possible. Unfortunately, we have no clue to how long they will last. Tomorrow is critical for this 2 day move to continue and lays with the Philly Fed report, we think. Not much noise about this number, but it plays into our overlooked Empire positive number early this week.
As in today’s post, we think a small gap in the morning is very possible to SPX1K area, as we closed above 993. We also believe China will rebound off our market with stocks here playing some catch up to the SPY move. After …it’s all in the Phily hands, but Initial claims will play some role before the 10am number. If we trade/ close over 1005 sparked by Philly, we may likely say good bye to 1014 as a summer top idea . Hard to believe just 24 hrs ago, but becoming plausible. Just as much is going back to 980 soon if the #'s disappoint.