POSITIONS: Long Consumer Discretionary (XLY), Consumer Staples (XLP) and Utilities. Short Russell 2000 (IWM).
While the short squeeze (see chart) from my long-term TAIL breakout line (1267) has been proactively predictable, the short squeeze you’re seeing at the top of this immediate-term TRADE move in certain high-short interest stocks/ETFs/etc has been epic.
In the very immediate-term (I mean 3 trading hours to 3 days) this is where the Pain Trade tends to capitulate – more so in certain stocks than the stock index. Ultimately, provided that the US Dollar strength and US employment improvement continues, I think we’re headed toward a 1363 test. That will take more time.
For now, here are the lines I want to be managing gross and net exposure risk around:
- Immediate-term TRADE overbought = 1314
- Immediate-term TRADE support = 1293
- Long-term TAIL support = 1267
Another way to think about this is in terms of your beta-adjusted gross and net exposure. On the way towards 1314, you want to beta-shift to lower beta long positions, and take a few shots at higher-beta shorts that have been squeezed.
Keith R. McCullough
Chief Executive Officer