For the last few weeks we’ve been discussing the potential of a short squeeze in the markets. That’s exactly what we saw on Thursday and Friday of the 3-day weekend.
Bear market bounces are fast, brutal, and can last longer than anyone who’s holding short positions would like to bear (no pun intended). The key, however, is to see these bounces for what they are. So long as the weekly structure remains bearish, these bounces can make for some of the best shorting opportunities in a downtrend.
Looking at the SPY, it looks like it could have cleared itself a path for a push into $420 next week with Friday’s close above the daily 21 exponential moving average (EMA). While our major focus will be shorting this bounce, remember that these reversion-to-the-mean moves can make for solid, albeit short-lived, long positions.
On Friday afternoon, we bought a 6/03 expiration call debit spread on the SPY in the Compounding Growth Mastery. Should we get the push into $420+, the trade should net a 200% to 300% return. We’ll look to parlay those profits into new shorts.
As for structuring shorts, we’ll be looking for initial entries in July expiration call credit spreads with a simple risk management plan. So long as the market is trading under the weekly 21 EMA, we’ll continue scaling into shorts looking for the next flush to new lows.
The overall market might be as bearish as it’s been in a while, but there continues to be great setups looking poised for more upside. XLE, USO, and XEL are just a few examples we’ll cover in this Sunday’s watchlist video!
Stay Focused!