Marketview: Legendary Short Squeeze BHI, CAT, V, MA, BMY, JNJ

• Posted by DynamicHedge
• on October 15th, 2011

A low-volume short squeeze and a good retail sales report and all of a sudden the world doesn’t look so bad.  This will go down as one of the great short squeezes of all time.  Nine days and 14%.  Crazy.

I want to see something other than a pure short squeeze before I get too bulled up.  Here are the thematic winners and losers of the last week:

Winners: $BHI, $SLB, $HAL, $NOV, $CAT, $C, $MET, $MA, $V

Losers: $MDT, $BMY, $BAX, $JNJ, $SO, $ETR, $AEP, $CL, $PG, $MO

Two nagging elements are keep me cautious.  1. Where is tech in all this?  This leg up is just the same risk rotation that we’ve been seeing throughout the long chop from mid-August thru September.  There is no new leadership to speak of.  Sure $AAPL is at the head of the pack, but what else is new?  2. Why is the safety trade getting close to 52-week highs.  If everything is fixed why are investors still aggressively pursuing utilities and healthcare? What I’m seeing is an epic short squeeze in financials and basic materials dragging the rest of the market up by its hair. We said last week:

Both the winners and losers look decidedly bearish.  Last time both the winner and loser charts had synchronized bearish patterns we rallied an additional 7.1% after the pullback.

Not sure if this will still play out, or if we’ve seem the real “pullback” in this rally, but for argument sake lets say that either 1150 or 1190 is all the pullback we get.  7% puts us at 1231 from the 1150 pullback, and 1274 from the 1190 pullback.  Given the action we’ve seen in the last two weeks, both targets are very reachable.

Winners:

Losers:

It’s tough trading out there.  I had lunch with a fellow trader today and we got talking about some mutual friends leaving the business or considering leaving the business out of sheer frustration.  We’re talking about 10-15 year veterans moving on — lots of them.  That’s the type of market we’re in right now.  This is about as ruthless as it gets.  So if you’re struggling out there, you’re not alone.

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