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Friday was day 3 of a genuine shock and awe short squeeze and going into the bell it was still building steam even more. I kept in touch online with a number of professional traders over the years and it looks like most were short big when this started and a couple still have not been able to get their shorts fully covered. The market has just been gapping up thru thin air at a blistering pace but when the squeeze is over, as always, we will find out if the ground campaign can do its part or not.
In the upper chart cluster we see that the 20yr bond sold even lower Friday but closed pretty much sideways. The vix / fear index fell hard Friday and actually has a small descending triangle representing Friday's four 2-hour trading bars. If the vix reenters the brown downhill channel, the number 3 buy signal will be raised to #4 - the largest. In the top row of the upper charts, the S&P's trading action on Friday built a small bullish ascending triangle.
In the lower charts, row 1 chart 3, we have four more large moving averages left in the congestion cluster to get thru before it's truly a breakout. In chart 4 row 1, Friday morning we gapped over the red 108 EMA and also gapped over the lower line of the brown uphill mother channel. In row 2, tomorrow or Wednesday we will possibly find out if the 1123 S&P level is going to be the end of the squeeze because it is the top blue line of this summer's trading range or if we are to break out of the blue line trading range and regain the very bullish red uphill channel. Row 3 chart 2, the squeeze is still skipping the red 5 along the red 10 keeping the momentum going against those trying to cover their short positions. Chart 3 row 3, the adv/dec is starting to get overbought but could still have some more upside tomorrow before being extremely overbought short term.
Whether or not this is the beginning of a new leg up or just a fierce surprise short squeeze to reduce the massive built up short interest in the market is yet to be determined. To the average person who simply owns stocks in their retirement accounts, this vertical 3-day move will no doubt boost everyone's sentiment in general, and with elections getting close this is what this spike is all about.
Alan
