Short Squeeze Has Started – Buy This Bounce – Big News At Noon
Posted by Pete Stolcers on November 28
Posted 9:30 AM ET – There wasn’t any incremental news overnight. The last two days the S&P 500 has been able to rally in the last hour of trading. We have seen follow-through the next day and a double bottom is forming on a daily chart. Bearish sentiment is high and we are due for a short squeeze.
Fed chairman Powell will speak at noon Eastern time today. I’m expecting a more dovish tone and we should see a relief rally. The FOMC minutes will be released tomorrow and they should also be more dovish. I’m still expecting a rate hike in December, but tightening should ease next year.
China will post its PMI Friday. Retailers and manufacturers have been stocking up on inventory ahead of tariff increases. This surplus will have consequences in 2019, but for now it is inflating China’s growth. Xi will make sure the number Friday is strong ahead of his meeting with Trump.
Trump and Xi will meet this weekend. The stakes are high and both economies (and stock markets) would benefit from friendly comments. Consumers spend a lot of money in December and both leaders want to finish the year on a high note. Trump plans to increase the current 10% tariff rate to 25% in January, but in the spirit of trade negotiations he will not impose new tariffs on $260 billion worth of Chinese goods. This will not sit well with Xi, but Trump could postpone the increase as a sign of good faith. A deal will take many months to forge and the mudslinging will resume in a couple of weeks. I believe we are headed for a cold war.
The next few days should calm investor fears and I’m expecting a nice bounce to the 200-day moving average. Shorts will get squeezed and that will fuel the move.
Swing traders are long SPY at $263.50. Raise your stop to $267 on an intraday basis and set a target of $276. This bounce should last a week. The dark clouds still loom and investors will realize that a trade deal with China is a long way off and that the Fed still plans to hike in December. This is only a bounce and we do not want to overstay our welcome. Make sure you use intraday stops and make sure you set targets.
Day traders should focus on the long side this morning. Make sure the bid is firm and buy aggressively if the market is above the first hour high. Be cautious around noon ET. We will see volatility after Powell’s comments. If the reaction is positive, load up.
GDP was 3.5% this morning and that was in line with expectations.
Look for a nice bounce that lasts a week.
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