Thursday, August 27, 2015

Shorts Rally - But For How Long?

A second day of gains keeps pressure on shorts in squeezing them out of their positions, but is also looking to sucker shorts into trying to second guess when this rally will end.

The S&P is heading fast towards 2,044. Given the speed at which it has enjoyed this advance it will be there by Tuesday! In reality, it will likely slow before it gets there. When markets do head lower it will be important they do so slowly to sow further doubt into shorts.

The Nasdaq will be testing resistance tomorrow, and is close to coming up against its 200-day MA.  Those who bought the low will be very happy.

The Russell 2000 enjoyed a perfect bounce off the 10% envelope around its 200-day MA. Supply is not likely to be hit until it gets to 1,189.  Unlike other indices it hasn't enjoyed the same degree of gains, but this will likely help it in the long term.

Of the indices, the Nasdaq 100 has already reached supply. It's the index most likely to test its 200-day MA first. This will give an idea as to whether this rally marks a key low, or is just part of a big bear rally.

The Semiconductor Index has also put in the groundwork for a rally. It's early days, but this index has been one of the hardest hit since May, down almost 28% from May highs.

While markets post gains, the question on trader's lips is whether these gains are real, or just shorts covering.

You've now read my opinion, next read Douglas' and Jani's.

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Dr. Declan Fallon is the Senior Market Technician and Community Director for, and Product Development Manager for I do a weekly broadcast on Friday's at 13:30 GMT for Tradercast, covering indices, FX and gold, silver and oil - all are welcome! You can read what others are saying about Zignals on