For the bears and the bulls, but mostly the bears, it’s deja vu all over again.
As Credit Suisse points out in its daily Top 10 observations, “the price action in the last 48 hours feels a lot like Feb/early March” but nobody knows it better than the shorts: as BofA writes, “lot of pain being felt out there on the short side” and points out that its “short interest vs float basket strongly outperforming this morning, up 200bp” and highlights the following squeezed names: ATI +8%, X +8.12%, FIT +9.4%, WETF +8.9%, LPLA +5.90%, AMBA +7.12%, ATVI +3.79%, RCII +6.66%, JNS +5.54%, SPNC +6.6%%
In other words, the short squeeze is back and with a vengeance:
Yesterday saw heavy covering in energy w our squeeze basket up over 5% and Brent breaking above 200 DMA. Today GS most short rolling basket up 2.35% and our energy and material short baskets again outperform by 30 and 74bps respectively.
So where does that leave the market technically, and how is Credit Suisse trading it?
S&P 500 (June) now up at our 2070/80 bull target – the measured objective from the base and price resistance. With potential trend resistance not far above at 2090, we continue to look for sellers here. Russell 2000 stays trapped in its near-term range.
However, there is one very big caveat:
Concern, as always, is that market positioning remains short, and if we start taking out resistance levels, we could see a big short stop out…
In other words, go ahead and short, but the second the squeeze returns, run. This is prudent because as we will show momentarily, the risk of getting slaughtered in the latest ongoing short squeeze is high to quite high.