Daily Analysis: Stocks Blast Higher as Another Short-Squeeze Erupts

Wednesday Market Recap

Asset Current Value Daily Change
S&P 500 2644 1.21%
DAX 12,063 0.48%
WTI Crude Oil 63.56 0.21%
GOLD 1337.00 0.03%
Bitcoin 6,910 -7.63%
EUR/USD 1.2281 -0.81%

When we predicted a bumpy road for shorts despite today’s overnight selloff, we didn’t anticipate what actually happened on Wall Street during the cash session. The major US indices not just erased the more than 2% pre-market drop, but managed to close around 1% above yesterday’s close, as late shorts got burned once more, similarly to yesterday’s and last week’s short-squeezes.

Dow Futures, 4-Hour Chart Analysis

Even the range of the moves is similar, so for now, today’s almost 1000 point surge in the Dow didn’t change the basic setup in equities. That said, as we noted several times, these levels are not favorable for new short positions, and sentiment is bearish enough to justify a more durable rally.

Nasdaq 100 Futures, 4-Hour Chart Analysis

Today’s ramp higher came on “bad news” regarding US-Chinese trade skirmish, and that is another positive sign for bulls, but the Dow, the S&P 500, and the Nasdaq are still in short-term downtrends, so traders should still treat long-positions as counter-trend trades requiring strict risk management.

Rally in Yields Continues on Strong Employment Numbers

10-year US Treasury Yield, 4-Hour Chart Analysis

Treasury yields closed the session on one-week highs, as the ADP employment report showed a robust labor market, which bodes well before Friday’s government release, while the relief rally is risk assets also pushed yields higher across the curve, despite the slight miss in the ISM services PMI.

The relative strength in the recently leading risk-on currencies that we noted today persisted throughout the session, with the Canadian Dollar getting a boost from Trump, who softened his stance in some key NAFTA issues amid the intensifying tariff-war with China. The Dollar remained stable compared to the Euro thanks to the employment numbers, with the EUR/USD trading below 1.23, as the Dollar index held up near the 90 level.

USD/JPY, 4-Hour Chart Analysis

The early safe-haven rally faded as stock ramped higher, with gold yet again retreating below $1340, and the Yen pulling back heavily from its session highs. Oil also completed a round trip after a negative overnight session, with the WTI contract bouncing back above $63 per barrel following a surprising inventory draw in the US.

Cryptocurrencies

LTC/USD, 4-Hour Chart Analysis

The segment is still ruled by bears, as yesterday’s broad bounce quickly faded away today, with the major coins staying inside their declining trends. As yesterday’s leaders failed to hold on to their gains, the market still misses leadership that would be needed for a healthy rally.

As last week’s lows are holding up, bulls can still hope for a successful re-test of those levels, but short-term traders shouldn’t trade just on that hope and wait for a trend change before entering new positions.

Long-term investors could still accumulate their chosen coins, as the dismal sentiment readings and the severely oversold momentum indicators suggest that a major bottom is near, even if another downswing could be ahead.

Featured image from Shutterstock

Author:
Trader and financial analyst, with 10 years of experience in the field. An expert in technical analysis and risk management, but also an avid practitioner of value investment and passive strategies, with a passion towards anything that is connected to the market.