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Hook Talk and Short Squeezes

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#1 Russ Winter

Russ Winter

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Posted 12 June 2012 - 01:49 PM

As I antipicated, over-trading by shorts set up and fueled the latest bailout du jour sedative rally.  Tuesday festivities seemed driven by late in the day hook- happy- talk from a Fed dove.  This Friday will be a ‘quad witch’ on the stock indices giving the big players license to muscle the market in thin volume.Eyeballing these levels I would guess that a good three-fourths of the new shorts put on since April were covered in this low volume move back up to 1325.  I think right now we are primarily seeing noise from the last of short covering.   As you can see the shorting off the early June low was no where near what built up at the October, 2011 bottom. In fact given the economic realities, the shorting at this intermediate term bottom was quite tame, and thus bearish.   McClellan oscillator is somewhat overbought at 123, which indicates we are in mode to implement bearish trades.Posted ImageMany chartists and technicians using trendlines, Fibonacci retracement levels, and DeMark exhaustion counts, point to a retest of the 1,248 to 1,278 range as being very significant support relative to investment outcomes over the next three-to-six months. No doubt this will be a bailout, stimulus (mucky muck) watch and thus feels very hook like.Still as I have been indicating,  I am open to playing another mucky muck off of this level with 10-12% of my capital allocation “ready to be committed” into selected deep-value silver, uranium,  new industrial revolution, fertilizer, and energy infrastructure names.   Ironically these are excellent no-growth economy situations, and I think these will work with or without central bank mucky muck.  I am following up Thursday with a further post on this overall theme.  In the Ditto Trading accounts I will start moving on these when the time is right,  so if you are attending get your accounts set up and pick Winter Actionables for your lead trader.The last chart shows one more reason why I am bearish on US consumer discretionary especially at these valuations.  And this doesn’t even count the artificial props, fiscal cliff issues, the underwater homeowners, and the job malaise. Regardless of how the 1260 level plays out, this paired trade is the way I want to go although it should be put on at 1330 plus levels.In the short run, I am adding TOL (25.45) and LEN (26.19) and will use high IV naked call writes. Homebuilders selling at two book at this stage are inflated. Other set ups:  IWM 78.70,  XLI 36.77,  XRT 59.84,  XLY 43.95, JNK 39.69, SKF buy at 46.45.   I would reenter HDGE on a 50% retracement to about 23, SBUX 54.07,  JWN 50.74,  M 37.47.source; Henry DentPosted Image

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