Stock market bulls do not fear shorts because they know they can squeeze them out of the market. Bulls fear other bulls who might sell stocks when fundamentals and technicals get weak.
Stock bulls would like to see technicals getting worse and shorts accumulating. Then, another short squeeze will put another V-bottom in place, followed by a rise to new all-time highs. Sometimes this gets counterintuitive.
The daily chart’s technicals look weak. Technical analysts have names for those random patterns. However, for many years, bulls have benefited greatly from random bearish patterns. V-bottoms have followed the majority of those patterns, and shorts have been squeezed out. This will also happen after the current pattern unless some bulls decide to sell due to weakening fundamentals.
Instead of shorts, bulls face bulls who sell for cash or buy bonds. Current yield levels have been attractive, and we saw a rally in bond prices. Since February 19, the SPY ETF is down 3% while the TLT ETF is up 4.3%. However, this may be a “transitory” correction for stocks and a rebound for bonds. We will know soon. Forecasts are challenging, particularly when it comes to the markets.
Subscribe below for notifications of new posts and updates from the Price Action Lab Blog and get the free PDF book “Profitability and Systematic Trading” (Wiley, 2008).
Premium Content
By subscribing, you have immediate access to hundreds of articles. Premium Articles subscribers have immediate access to more than two hundred articles, and All in One subscribers have access to all premium articles, books, premium insights, and market signal content.
Specific disclaimer: This article includes charts that may reference price levels. If market conditions change the price levels or any analysis based on them, we may not update the charts. All charts in this article are for informational purposes only. See the disclaimer for more information.
Disclaimer: We only provide the articles for informational purposes, not as investment advice or actionable content. We do not warrant the accuracy, completeness, fitness, or timeliness for any particular purposes of the articles. You should never treat the articles as financial advice. The author of this website is not a registered financial adviser. Before subscribing, please read our Disclaimer and Terms and Conditions.
Charting and backtesting program: Amibroker. Data provider: Norgate Data
If you found this article interesting, you may follow this blog via RSS, email, or Twitter.
