This market is making new highs on blood sweat and tears of the shorts- but, little do they realize:
Al-Serrao- I was researching into Why market keep bouncing and unable to test lows even in a correction?
To be honest I thought that this DOW and S&P will be better off, if they try to test 850, it was not to be. I have following explanation:
Sales of short positions increased at record pace for the month ending 10 th June.
Short interest is equal to 1.8% of the total shares listed on the Big Board. On AMEX short interest rose 7.45% to 171 million shares.
Short sellers have borrowed stock and sold some are short at 770 S&P, the point at which this blowout phase begin, these high short positionsa barometer of bearish sentiments are very bullish from a contrarian point of view.
ost of these shorts are losing and sitting on big paper losses, nearly everyone is putting up with the margin calls, nearly all of them think this is not going to last and therefore with every new top they willingly let positions run more expecting a violent pull back.
By failing to unwind their positions they are providing fuel to this market, the bigger the losses are greater is the desire to cover them, so on a day lioke Monday when market was down 200 points some of these big losers on the upper end of laddered losses pyramid ran for the cover the moment they did that market regained what it had given up.
As a person who has learn my modest trading through streak of losses spanning over years I tell you 'culture of loss' once entrenched is difficult to get rid of.
Now what is the solution, the only way I can see this market to loose some steam is that 'shorts' may start going long here, this huge 'short' mountain of 1.8% of total shares issued has to be unwinded to a level where negative sentiment may abate a bit.
The drop where this mountain of huge debt starts making money is below S&P 770, above that any correction should be used to bite the bullet gradually, only a single day 100 points S&P drop can take markets down to levels where shorts may instead of covering start enjoying their gains. Below 770 is a black hole, but earning driven market is in a phase of non-inflationary growth period and unless there is no threat of severe downturn in economic activity we keep on moving higher, unfortunately at every new resistance on charts ' the big one' looks a reality and more positions are added on the short side, it is the shorts who are behind this blow out phase. Until such time that short interest retreats we need not to worry about INTC MSFT IBM CSCO COMS SUNW ASND SEG WDC MO. In a winner takes it all market only two things can trigger a meltdown:
Failure of the big bell weathers to deliver earnings like INTC failing big time- huge short fall- a huge knock of INTC will have a potential to hit 2 trillion $ market cap of TECHS, a 25 % drop in INTC can result into 25% or even more in techs take that off SOXx, and you are looking at dismal scenerio of SOXxat 165.
The other unseen threat is deflation or a downturn, market and Ms Cohen believe that economy will not slow down to a level where we may enter a recession, market is prized on basis of a smooth landing.
I think to talk on broad analyasis encourages defensive respose, I will like to watch my downside as I keep making money, some may think this is not IDEA but talking loud is good, green pastures all arond I lived as a nomad far too long like to think of days when seasons change and rain is difficult to come by.
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