The big question heading into next week is whether or not we get a shortable bounce. The weekly and 3-day squeezes in the S&P 500 (SPX) continue to look poised for more downside, as they haven’t even fired short yet.
In terms of shorting the bounce, in hindsight, it would have been great to short the post-Fed pop on Wednesday.
After Federal Reserve Chairman Jerome Powell wrapped up his speech, we saw the SPX, QQQ, and names like TSLA rally into their falling 21 exponential moving averages (EMA). We didn’t take any action into that pop (aside from taking profits on long positions), so we are patiently waiting for the next bounce before initiating our shorts.
Remember that heading into next week, we have the indices trading below -2 average true ranges (ATR) on the daily charts with a put/call ratio above 1. Often when the market finds itself in this position, there is a potential for a short squeeze around the corner.
As bearish as things look, we suggest being careful playing the short side until we see a brief relief rally. If we do, we’ll be ready to open shorts on the SPX as close to the 21 EMA as possible.