Our macro risk management models refresh every 90 minutes of marked-to-market trading. Our models are multi-factor and this construction is primarily born out of my career’s mistakes of using price momentum (and the simple moving averages of price) one dimensionally. On balance, multi-factor modeling adheres to the principles of chaos theory much more appropriately than basic algebra.
What’s most interesting about the second meaningful short squeeze (100bps or more) since the closing low of 1071 last Thursday is that volume and volatility studies are flashing bearish on the second squeeze. Not only is the rally from the morning lows 1/3 less in terms of trough-to-peak price percentage, but volume continues to slide and the VIX is running ½ the percentage drop it saw at this stage of Friday’s rally. The VIX continues to hold its most immediate term line of support of $33.09.
For the first time in the last 3 days of trading, I am also registering a lower-low of immediate term TRADE support at 1055. This is important 1. because its new and 2. because a breakdown through the long term TAIL line of 1070 has its implied risks if it were to occur.
Squeezy has eaten the shorts twice now in 2 trading days. I think he’s full, for now, and I am much more comfortable having no position in the SP500. It’s time to wait and watch as Squeezy swims below 1070.
Keith R. McCullough
Chief Executive Officer