Stock Market Technical Analysis Blog
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The ferocity of Thursday morning's short squeeze on the indexes can often leave traders wondering why then and why so much? The answer can be found in looking a the monthly bars of the Nasdaq and UUP (US Dollar ETF).
Looking closely at the top chart of the Nasdaq we can see that before Thursday's market squeeze the red 5 EMA on the Nasdaq was pretty much going sideways in jeopardy of piercing right through the 10 green EMA line which would have caused a serious market fall. Looking at the UUP chart we see that before the big market squeeze it had a huge powerful pivot point at the junction of the red 5, green 10 and blue 20 EMAs. Looking closely you can see that the red 5 has been on top of the two other EMAs so far this month. This setup on the UUP was ready to launch a monster run up in the US Dollar which would have caused a huge drop in the stock market as they trade inversely almost perfectly. When they realized the danger point was here they stepped in and took action Thursday morning in a big way. As you can see, the UUP has fallen substantially in this monthly bar with almost all of it in the past two days now leaving the UUP 5 EMA pointing down so that if they keep driving this short squeeze through the end of the month we will have a down cross instead of an up cross normally good for at least 2-3 months in stock market run up. Granted this month's bar still has two weeks until it is closed, if they follow through and never let the pressure off the shorts in the next two weeks they will have effectively avoided a serious correction just in time. If they can't keep it squeezing and they lose control then this month's 5/10/20 pinpoint juncture on the UUP will still remain and when the October bar opens still in a vulnerable position. Considering how nicely curved the red / green 5/10 layup is showing now on the Nasdaq chart the odds are definitely in favor of the stocks going higher.