Tuesday, October 04, 2011

Technical Picture - Short Squeeze on Breach of August Lows

As discussed in my last post, we were expecting a rip your face off, bear market rally on the retest of the August lows. That's exactly what we got this afternoon.

We took the August lows out overnight on the ES mini futures, gapped wide, and after bottoming on the 10:00 turn, we managed a half way back into the ambush zone of yesterday's break down lows to lows. Initially, I thought we might base and break from there, but the bears didn't want, so I got a signal to short again. After retracing most of the morning run up, I noticed the NQ futures were printing new lows on AAPL weakness. The new lows on the NQ and QQQ were not confirmed by the broader markets and that was the tell that we might get the much anticipated short squeeze, if AAPL could just capitulate and reverse.

Bear market rallies are usually very short in duration, so I'm not expecting much follow through. The maximum expectation is the ambush zone of the last leg down as depicted on the 15 min. chart below. But don't be disappointed if we don't even get that far. Don't fight the tape on the squeezes, but don't forget that the overriding trend is still to the downside. If we gap down tomorrow morning, look for support in the ambush zone of today's range.


M said...


A question on your SPY short. Why didn't you short when price hit the 61.8% retracement, formed a series of small bars followed by a weak red bar (you shorted at the second attempt). Just trying to understand. Will appreciate your input.

Lovely long there.

Jamie said...


I use a 1 minute timeframe with 50 SMA. I like to short when price breaks below 50 SMA and comes back up for retest. Slope of 50MA is very important as well. Slope has to be flat and slightly curving down.

The algos short when price comes into fib, but this can be aggravating for humans, especially if we get multiple retests over a lengthy period of time.

Thx, I've been waiting a long time for this short squeeze.

M said...

Thanks Jamie. I always learn new trading techniques from you.

I love your market analysis. One of the best on the web.

Jamie said...

Thanks M, appreciate your feedback.

Ashish said...

Hi Jamie,

For building a focus list for the next day, do u rely primarily on 15 min charts, or daily charts, or a combination of both.


Jamie said...

Hi Ash,

Yes, I use both time frames. Today, was good day to buy off of daily reversal bars because we held yesterday's gains in early trade. I traded POT and TCK.