Securities Research Services

Tuesday, November 25, 2008

Is This Short Squeeze Any Different?

Over the past two trading days we have experienced a short squeeze. Late Friday the market rallied on the news of Obama's Treasury Secretary nominee and then yesterday bulls had the impetus of a Citigroup bailout.

But is it enough?

So far we see no evidence that this short squeeze is any different than the short lived squeezes we have witnessed over the past couple of months. Volume shrank on Monday and prices merely rallied back into resistance.

That said, this is a holiday week and just rallying into resistance is not a good reason to re enter short positions. The big cats will be away this week leaving the mice room to play.

Moreover, it is important to keep in mind that the market remains historically oversold. At some point a significant bear market rally will develop.

The bottom line here is that trading conditions are not very favorable here. If the market can continue to drift higher on decreasing volume then we would go ahead and short again. If it pulls back on lighter volume there might be a good bounce trade to play. As things now sit, we just don't see any real advantages either way (at least ones that fit our trading style) so we will be sitting on our hands in cash waiting to see how things develop from here.

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