In the market Wednesday, we got our short squeeze that I discussed in the closing sentence of Tuesday's post. It has been said that Team Yellen likes to wait until they can see the whites of the bears' eyes before intervening. Once again that's exactly what they did Wednesday right as the market pinpointed last Thursday's low tick; they came in with guns blazing and started a ferocious short squeeze. As I mentioned in Tuesday night's post, if we did get the big up day Wednesday it could undo the VXX up cross that was starting to show late Tuesday (iPath S&P 500 VIX Short Term Futures ARCA: VXX).
Looking at the lower right corner chart above, we can see that is exactly what is happening. At the same time, the focus chart of the S&P right above it shows that Tuesday's imminent down cross was stopped and now the red line is starting to curve back up. This could be called art except that Team Yellen executes this intervention the same way every time; they let the market go to the brink before storming onto the field giving the shorts their worst nightmare.
Wednesday was just the start, there is still a lot of work to do. We climbed almost to the upper line of the S&P downhill channel shown in the chart above. However, we still must break out of that channel, preferably with a back test of the upper line then pushing up higher from it.
Also, to convert this double bottom in the S&P into a multi-week rally we have to break up through the blue 20 EMA line shown above, plus reenter the uphill midterm channel shown in the same chart. In order for this to be more than just a monster short squeeze to clean off the recent new shorts, we must have convincing follow-through.
Trade well my friends
Alan
