Potential Short Squeeze Setting Up

From the year 2004 volatility and breadth levels noticeably declined from prior readings. This makes sense since the market up until November of 2005 was in a fairly tight trading range. During this trading range whenever indices threatened to break out, breadth would decline, good trade set ups were difficult to find, and ultimately the subsequent failed breakout would grind hopeful longs into submission as supports failed to hold. Early this month the major indices broke out above resistance and breadth and volume were strong this time. Last Friday however the breakouts failed on a high volume crash day. What hasn't happened yet though is a decrease in market breadth. Small caps are still performing quite nicely and set ups are looking more and more promising. There is some selling pressure, but sellers are far from being in control of this market. This week we are faced with major indices consolidating last Friday's sell off. Theoretically this consolidation period should favor the shorts as they build their short positions and attack each rally attempt. The problem for the shorts right now is that the indices are not only extremely oversold, but breadth figures are pretty good. This means that there are a whole lot of stocks that are not breaking down with the indices and leadership has been changing. To make matters even more difficult for shorts is the fact that we are moving into the end of the month buying window. The market could break down further here, but the probabilities stacked against this are formidable. Aggressive shorts putting on positions in hope of a support break here are going to be forced to cover when the market bounces to relieve some of the oversold pressure. Likewise, when fund money comes in at the end of the month there is a potential for a very strong bull-inspiring short squeeze.