How much more squeezing can the shorts take? I do not know (nor does anyone else that does not move the market with their orders) the answer to that rhetorical question. However, it should be noted that short squeezes can last longer than the bears can stay solvent. Just because we are even more overbought following the gains in most indexes today, this rally still could continue up and through the 200 day moving averages before any pullback starts. While I find the likely hood of that slim it is still a possibility. The bottom line is that this market is still squeezing shorts higher on lackluster volume. The further it does this without a healthy pullback the greater the chances this rally turns into a sell off at some point in the near term future.
The Nasdaq and Nasdaq 100 managed to close lower today with another intraday reversal off their intraday highs (two in a row). This short-term price action suggest that stocks are tired here. The flip-side of that, however, is the Russell 2000 which closed near its highs of the day. That being said, my RUT chart had BOP go green today and historically when BOP finally goes green on an index (especially the Russell 2000) it usually means a pullback is right around the corner. So take the strength in the RUT today with a grain of salt. Especially after an insane V-shaped move as it has had off its February lows. Crazy.
Following this absolutely insane short-squeeze V-shaped move off the lows, the market has come to a very key inflection point. If the market reverses here on strong volume and I start to see the few leading stocks setting up in decent consolidation patterns reverse then I am looking to heavily short this market. Especially after this insane rally off the lows. However, if this market pulls back on lower volume and pulls back in an orderly fashion, I am going to start hunting/looking for handles in the names that have now completed or are in the journey of completing right sides of bases on strong accumulation. If the market actually starts to consolidate for more than a week, I will start initiating sizeable buy stops in the highest quality names (like FSLR) that are making handles.
As of right now, taking any size in any names at this juncture is strictly portfolio suicide. This tape is so extreme that it only makes sense trading on a very short term intraday basis. On that end, some of these low priced oil names have simply come too far too fast and are now so extended that they are setup for some dramatic intraday breakdowns. The profits that could potentially be made on morning reversals or late day fades is an opportunity I do not advise any daytrader to pass up. The best stocks on watch tomorrow are LINE EPE SDRL EXXI and GLF. The ideal setup would be to see these stocks rally in the morning and reverse on heavy trade. If that does not happen I will be looking for a blowoff top and then a series of lower highs and lower lows. Once that is in the bag, shorting bounces will be the play.
