Alright you degenerates...
The market gods pulled the rug just when we thought we were out of the woods after Wednesday’s post-fed squeeze! This feels like the first time we can’t directly blame Powell for the rinse. Despite the last week’s weakness, we still are yet to see capitulation. The pattern has been a slow, painful grind down with brief squeezes from time to time. Unfortunately, these violent short-term rips reset a lot of the good that the pullback did. The P/C Ratio finally started to move higher on Friday up until the squeeze, where it stalled. Short-sentiment indicators flare up on these squeezes and delay that next leg down that we’re looking for.
Sweeper activity remains a disappointment overall, with few notable bets outside of rampant buying in weekly options. Sector Sentiment is an obstacle because there are still places to hide in this market. Yup, we’re talking about those Energy and Materials names you love. These need to get flushed out before players throw in the towel. However, once we get the ultimate reset, the rally that follows should have improved breadth, which is where you’ll start to see players stick their necks out to put on long-term exposure.
This week’s CPI print should be the final hurdle we have to get through for a while. Last week, the market violently squeezed following the Fed meeting due to the sheer amount of bearish positioning leading up to the event. It wouldn’t be surprising to see something similar take place this week, given the anxiety surrounding inflation right now. Any reading that falls short of expectations will likely be a massive relief and may cause market participants to rethink their positioning.
Even though this pain seems endless, it could only take one positive catalyst for sentiment to shift entirely in the other direction. Despite conflicting opinions on where this market is headed next, there is one thing all traders can agree on: everyone is scared sh*tless right now. Longer-term bullish positioning is abysmal. So if the bears get caught offsides into a violent rally, buckle up for a ride!
We got a three-handle on this indicator intraday Friday, but those pesky bulls had to run the market up late in the day. So even though the recent pullback has been constructive, as long as squeeze players keep moving the market higher on an intraday basis, it’s unlikely that the Squeeze-O-Meter will get to a two-handle anytime soon. These lower readings on the Squeeze-O-Meter indicate a more favorable risk/reward setup.
It’s refreshing to see sweepers hit some options that don’t expire tomorrow. That’s some nice size in the AAPL calls for next year but doesn’t give us much color unless we see them come in again and gobble up further weakness. The STLD sweep is nothing new from the recent repeated activity in commodity-related names. Ultimately, pattern-buying is the telltale sign that players are committed to a name. Keep an eye out on sweeps in these names in the future.
Hedge Funds have stayed safe from the carnage so far. They haven’t missed out on anything by remaining underexposed. However, history shows that they usually aren’t right for long and generally end up chasing trend.
There’s been a washout across the board with the exception of Energy and Homebuilders. We’re unlikely to see capitulation until players get smoked out of their “hiding places” and feel the selling that’s taking place throughout the broader market.
In the second episode of our two-part series, Lucci and Steve Hammer join us to talk tape reading manually, the genesis of the HFT Alert software, and how to leverage it for different trading purposes.
Today Steamroom member and meditation teacher Peter McEwen joined Wall St. Jesus and our usual host, Chris Cady, to discuss today‘s massive squeeze, the psychological obstacles in trading, and much more.
See you mañana!