by Rick Ackerman, Rick’s Picks
Yesterday’s impressive short-squeeze was instructive, since it made clear that trying to amass a short position as the futures work their way lower will not work. Any bear who laid out stock between last Wednesday and Monday was in the comfort zone when trading began on Tuesday. The mild uptrend that ended the day may have made a few of them nervous, but not sufficiently so to cause them to bolt for the exits. Wednesday’s rally was another matter, however. It built slowly overnight, taunting bears to say “Uncle!” with a weak hammerlock that initially might have seemed escapable.
Then, on the opening bell, with little warning, the futures took off Wednesday morning like the proverbial bat out of hell. By mid-morning they were up the equivalent of 240 Dow points, snatching back gains that had taken four days to accumulate in just a few hours. Shorts were still on the ropes at the close, waiting for the coup de grace either Wednesday night or Thursday morning. We should expect a mop-up operation in the days ahead that consists of feints higher to take out shorts from late May and early June that were initiated presciently before the late, great downtrend began in earnest.
Click for large chart at Rick’s Picks.
The foregoing should serve to remind us that even for the most diligent permabear, there will be no “shorting the top.” Perhaps the top will come on unsettling news in the dead of night, or on a ferocious Friday afternoon spike that causes even the boldest bears to cower in fear. Or maybe stocks will go into a freefall in the middle of a quiet day, plummeting 500 points on thin volume. What a short squeeze that would set up! It would impale any trader lucky enough to have been short in the first place. If we are the lucky ones, let’s promise not to be patting ourselves on the back and toting up unrealized profits when the turn comes like a volcanic eruption from hell.
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