Short Squeeze Potential

The stock market keeps "Slip Sliding Away". NASDAQ breadth was negative at 17:12 decliners over advancers and the NYSE was also negative at 16:15. The volume was heavy again. The NASDAQ slightly underperformed the Dow Jones and Semiconductors were noticeably weak. The only sectors that showed relative buoyancy were Oil, Gold, and Biotechnology (clear defensive plays). The speculative technology buyers are much like the Lion in the Wizard of Oz, there is no courage.

Looking at the NASDAQ chart over the last few days, you can draw an almost perfect downtrend line connecting the peaks. The stock market did put in a slight higher low towards the end of today which may be the beginning of a looming short squeeze. Trends continue to need countertrends in order to gain more fuel to continue their relentless path. Therefore, we would not be surprised to see a quick vicious upside Spike either tomorrow or Monday.

Unlike Tuesday's upside Spike which reversed quickly, we believe the market would likely spike and flat line until the news from the Federal Reserve is released on the afternoon of September 20th. The reason for this view is simply that the Bears are finally getting a little too giddy. Don't forget that they're still tending fresh wounds and are ripe for a short squeeze.

If You Held a Taser to Our Head:
Mr. Market doesn't like anyone to feel giddy, just confused. He likes to pull the punch bowl away from Bulls and Bears alike in order to force them to guess without confidence appropriate portfolio positioning into big bad events like the Fed. In other words, the market needs to approach a more equilibrium price level heading into the Fed meeting. This would create the most anxiousness and confusion for market participants. Currently the reversion to the mean would be accomplished by a Spike and flat line. Therefore, we covered some of our NASDAQ 100 (QQQQ) short into today's weakness and are now approx. 25% invested.

Have a Good Night. See You Tomorrow.

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