Markets broke out yesterday and pushed small caps higher on a short squeeze frenzy. This is what I feared when I opened my recent short positions: a general market squeeze. I Hence covered half of my shorts and will now have to rethink my timing.
Interest rates expectations are leading market narratives for now: strong Treasuries auctions combined to a poor employment report rest rates hikes expectations lower.
Yesterday's Money flow was 350% of a normal days' money flow. This certainly must be respected.
The Cumulative Tick bounced back above its average trend line. This move should also be respected as it looks similar to past surges. This is bullish for the small caps.
The Russell 2000 also bounced back up and so did the IWM ETF. Hence, all the small caps bearishness disappeared in one bullish day.
Fixed income assets still look somehow bearish: the 10 Years Treasuries have a hard time bouncing, while money continues to leave Utilities and REITs.
Conclusions:
Being short the small caps is not a good idea anymore.
Besides buying AMZN/FB/AAPL/TSLA/NFLX with everybody else and shorting the VIX, I have no good idea that could work. I am not even sure on the rationale behind buying them here except for general trend following tendencies.The small caps squeeze will probably continue today.
Overnight, the US$ has lost ground again against all major currencies. Is this a sign that rates differentials are going to fall?
I will need to wait probably for another week before entering new positions. I guess that waiting for the first earrings reports would be the way to go.