Shorts provide 'relief'
Tuesday, June 14, 2011 at 07:09AM A relatively quiet weekend left longs with little to reason to step up with conviction and left shorts with little reason to press with conviction.
Unfortunately, it’s not only the fact we’re dealing with a buyers strike, its also the shorts, who don’t put downward pressure when seemingly they have the upper hand as they did after Friday’s sell off. If the shorts weren’t worried about upside risks, the market would have capitulated by now instead of just another slow bleed day extending the decline. Today’s major excitement was a batch of M&A activity (TBL off Shadowlist), just before the open that caused a morning blip higher due to short covering. This is not one of the catalysts we’ve just outlined and the fact the batch of deals were small <2bln of nature, it definitely wasn’t going to be a game changer. So, again a little short covering in the morning and the fade job begins. Different day, different time of day occurrence, but still the same market intraday trend we keep discussing.
Interestingly, a big upside risk for shorts is the market nearing SPX1250’s and the fear of another ricochet bounce. At this point shorts prefer to cover what they have on any sign of a bounce and reload higher ie. SPX1295. The ingredients are there for an oversized short covering with idle longs and scary wary shorts in the same mindset. The set up argues for a partial recovery/bounce from the consensus masses.
In all, the correction has been investors not waiting to find out if it’s only a ’soft patch’ in economic data, hence, any related surprises (inc.not worse than feared data) should provide a nice lift eventually.