Drop then Pop

May 13, 2022 – Happy Friday the 13th.  Another interesting week on Wall Street, but since I’m on the road, I’ll make this to the point. Sure, there are many pundits that at predicting / calling for a bottom here . . . and they may be right. But what I’m looking at is how “the big money” is positioned, and right now, they remain hedged with large Put positions. You can say that they won’t pick the bottom (or top), but these are professional money managers and they are quite happy to harvest the middle 80 to 90% of a trend move without taking on undue risk.

Keep in mind that in previous bear markets there have been 30 to 50% bounces up within the general a down trend. What we’ve seen this week is a “drop then pop” which is accentually short covering by those who are heavily hedged. They buy because they were heavily short speculative stocks . . . it’s called a “short squeeze”. The question is: are these stocks “viable companies”, by that I mean do they make money? One or two days (or more) of a rally in heavily shorted stocks does not mean a new bull market. I’ll wait for confirmation via the “big money” continuing to buy good companies (those with + P/E’s). Right now, this is a traders market and unless you are nimble I would just let it go for now. A near term rally is a strong possibility with volume picking up on down bars (capitulation) so next week could start off on a positive note . . . but will it continue?

Price chart by MetaStock; pie chart & table by www.HighGrowthStock.com. Used with permission.