There are many ways traders define a “squeeze” in the markets, but regardless of how you define it, the expected effect of a squeeze is the same.
Squeezes lead to big moves.
There are several big squeezes in the market right now, but if you’re not careful you’ll get distracted by the wrong one!
Elon Musk and Tesla are all over the news, and at the root of all the commotion is Mr. Musk’s disdain for the high short interest in Tesla.
He seems willing to say, maybe even do, anything to raise the price of his stock and ‘squeeze’ the short sellers into buying back their shorts to limit their losses as the stock rallies.
While following all these antics may be entertaining, betting on this is dangerous. the stock’s moves will be driven by unpredictable and potentially untrue news flow.
Don’t get distracted by Tesla.
There is a bigger, more tradable tradeable squeeze (maybe two) setting up in Mish’s Modern Family.
Another definition of a squeeze in the market is when price action gets compressed.
After a market gets compressed or squeezed, it tends to trend in the direction of the breakout from the compression.
Today, the SMH broke out of a consolidation that has been building for about 4 weeks.
In addition to consolidation patterns, I like to look at how squeezed they are by simply measuring the width of the Bollinger Bands relative to this measure over time.
For example, the width of the Bollinger bands in the SMH is the narrowest (squeezed) as it’s been since January! This would suggest that the break over the consolidation could lead to a big move.
Keep an eye on SMH.
However, there’s a squeeze that looks even better.
The IBB also has the narrowest Bollinger Bands of the year!
The IBB has not broken out yet, but unlike the SMH, if it does break its current consolidation to the upside, it doesn’t have as much resistance as the SMH has to get through.
In addition, if you look at the top 10 holdings of IBB you find several stocks that have very bullish looking patterns (i.e. AMGNWealth Strength IndexAAPL is Extremely Up and trending Up, BMRNWealth Strength IndexAAPL is Extremely Up and trending Up, REGNWealth Strength IndexAAPL is Extremely Up and trending Up, GILDWealth Strength IndexAAPL is Extremely Up and trending Up, VRTXWealth Strength IndexAAPL is Extremely Up and trending Up). I can’t say the same for the top SMH stocks.
So don’t get distracted by TSLAWealth Strength IndexAAPL is Extremely Up and trending Up. Focus on the Biotechs if you are looking for nice volatility!
S&P 500 (SPY) 284 Should be a support area, 282 is pivotal support. 286.63 is the all-time high.
Russell 2000 (IWM) Higher but struggled. Lots of resistance near 169. Look for support around 167.
Dow (DIA) New swing high. 258 is the next swing high. 252.70 is pivotal support.
Nasdaq (QQQ) Stalled at 182 level which is resistance. 182.93 is the all-time high, and the key support is at 179 then 177.75 then the 50 DMA at 175.62