Short Covering Rally 11032023

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Good morning, everyone, and welcome to Friday morning.

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It's Stephen Whiteside here from theuptrend.com.

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In the premarket this morning, stock index futures are mixed.

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We're seeing a little weakness in the Nasdaq this morning, and that has a lot to

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do with Apple trading lower in the premarket.

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Commodities are fairly stable.

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Both gold and crude oil are slightly higher on Friday morning.

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Now I am doing this video ahead of the employment numbers that are coming out at

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8:30 this morning, and they could certainly add to the premarket volatility.

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Now, it's been a week since I recommended

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you lock in some profits on your short positions or your long bear ETFs.

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Since then, the market has come back

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nicely and the VIXs continue to fall this week.

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And of course, a falling VIX is supportive for higher stock prices.

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Now, if we go back a week and look at the SPY chart for the S&P 500, you can see we

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were ranked as zero, punching through the bottom of the Panic Zones.

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This is the time and place that we look

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for buying opportunities, not selling opportunities.

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Now we keep a history of that particular

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indicator at the bottom of the Flypaper Channel chart.

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You can see there's a couple of lines here.

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There's one line at the two level, one

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line at the eight level, anything to or below, that's the time and

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place where we look for buying opportunities.

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That was certainly the situation we were in last Friday.

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Of course, we talked about the fact that

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every particular symbol is going to have its areas of potential resistance,

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whether it's recent peaks or valleys, recent highs and lows, our mathematical

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price targets, the moving averages, or even trend lines.

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In this particular case, last Friday, we had this downtrend line in the S&P 500.

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Remember, we've been talking about the fact that markets have been making lower

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highs and lower lows, and that was still certainly the case last Friday.

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We've had a very dramatic week over the past five trading days.

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What do you know?

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The S&P 500 traded right up to that downtrend line and stopped yesterday.

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Now here's the current panic zone chart for the SPY.

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As you can see, we are projecting higher

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prices all the way into December, up into the 450 area.

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Of course, we have to get over recent resistance to get there.

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Our next price target is up there at

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437.50 but if you remember back in September, we got lower and the top of

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that open gap is at 438.43. Is that an important number?

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Well, we couldn't get up to that level in October.

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That is still a major area of resistance

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to get up and over and can a short covering rally get us up and over that?

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Well, we'll just have to wait and see.

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Now, a week ago, the TSX looked like this.

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Again, it was ranked as zero down the

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bottom of the Panic Zones, Pressure Zone had formed.

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What do you know?

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Yesterday was a huge day up for the TSX.

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We weren't on a buy signal coming into yesterday's trading action.

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It happened very quickly.

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Of course, you got to think that most of that is short covering.

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Now, as you can see, the TSX is traded

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right back up towards the highs from October, where we stopped on a dime.

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One of the reasons we stopped on a dime

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in October was because we ran up to the lows of August.

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And so what was support on the way down

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often becomes resistance on the way back up.

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So it'll be quite interesting to see and quite bullish if we can take out that

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October high and drive through the August resistance.

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Now, Is expecting the US dollar to have to

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come down for a rally to start, but that is certainly not the case.

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And if you've been with us before, we talked about using the mid term chart on

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the US dollar index as it had just been treading water for a month now.

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Now, bonds have played a much bigger role in the rally this week.

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Bond traders have come in and started to buy bonds again.

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And again, it'll be interesting to see if we take out that October high.

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Of course, bonds going up has put downward

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pressure on bond yields, and that has helped fuel this short covering rally.

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The price of crude oil has been helpful this week.

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It has certainly not been going up.

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It is holding the October lows.

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If those break, then 78, 13, and 75 dollars come into play.

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Now if you were with us yesterday morning, I was pondering why Shopify had not

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participated in the Big Cap tech rally this week and then this happened.

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And so Shopify gap to hire yesterday and closed near the high of the day, which

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looks pretty bullish and traded up towards the top of the Panic Zones.

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I'm not sure that I would want to be

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jumping in on Shopify on Friday morning, but certainly if you still have a short

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position, you'd want to cover any short position that you have remaining.

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Now, when we talk about shorting stocks,

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we want to be shorting off the top of the Panic Zones where an early warning signal

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has gone off and you get a right side sell signal.

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That's the time and place you short stocks.

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You do not short stocks when they're trading down the bottom of

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the Panic Zones where a Pressure Zone has formed.

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That's the time and place where we get short covering rallies.

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One of the reasons we get short covering

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rallies is that the public is usually comfortable enough to short a stock when

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it's down at the bottom of the Panic Zones.

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They don't know what Panic Zones are, but

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what they have is psychological support to take a short position.

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That psychological support is often based

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on the fact that when a stock is hitting new lows on any particular move, that's

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when there's the most negative news and negative opinions about that stock.

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They have a current history of the stock trading lower and lower and lower.

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Why can that not continue forever?

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This is the time and place where they like to short stocks.

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Of course, it's the worst time and

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their shorting at the end that causes a lot of the short covering rally because as

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soon as the stock starts to turn around, they have absolutely no profit in their

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short trade and have to cover as quickly as possible.

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That's certainly what we saw in Shopify on Thursday.

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Now, while stocks have been coming back

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this week, there's still a lot of stocks that are dropping out of the sky.

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It's very easy to just go through and see some of the stocks are still getting hit

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hard on Thursday, while the rest of the market was moving sharply higher.

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Now, Apple is in the news this morning.

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It has been on a buy signal for the last couple of days.

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We're still projecting higher prices here.

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There's how Apple closed yesterday, second day of a buy signal.

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It is trading lower this morning.

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And of course, this number is going to be different by the time you see this video.

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But we are trading in the channel.

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We're not trading through the lower channel line right now.

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So so far, it doesn't look like we're

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going to see a sell signal for Apple on Thursday.

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Of course, if we ended the day with a sell

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signal for Apple, that would certainly be bearish for the overall market.

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Now with this short covering rally, you'll

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notice that on a lot of the charts, the pros have not taken control just yet.

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It's going to take a couple more days of

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higher closes than higher opens for us to see the pros actually take control.

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So again, a lot of short covering rallies this week.

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It doesn't mean that it can't continue to go higher from here.

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Certainly, a short covering rally can be a spark for a major trend change, and we'll

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just have to give it time to see if that is actually the case.

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Let's finish off with a look at gold and gold stocks.

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We've got the price of gold up at the top of the Panic Zones.

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Early warning signals have gone off.

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We're still having trouble getting over $2,000, which is for us, a mathematical

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target, but it's also a big round number, so a big psychological target.

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Gold had an inside day on Thursday.

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On Friday, we're looking for a close below $1,972.50. From what we're seeing in the

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premarket this morning, not expecting that to happen.

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Now, gold stocks have pulled back ahead of the price of gold.

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You can see on the GDX, the early warning

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signal up there at the top of the screen on the panic zone chart.

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We had a couple of bearish reversal days marking the top for this move.

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We're on a sell signal right now, but really not trending lower at the moment.

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We're just not attracting new buyers right now.

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That's also true on the XGD, a couple of

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bearish reversal signals, early warning signal at the top of the Panic Zones.

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There we are, we're on a sell signal.

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I put in a low on Wednesday, I did not take out that low on Thursday.

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You can see that there's a couple of open

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gaps over here and there's one, there's the other one.

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They may need to get filled before gold stocks can start rising again.

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We'll just have to wait and see how that turns out.

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And that's all for this morning's presentation, folks.

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It's still fairly quiet.

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We're still ahead of those employment numbers that will come out at 8:30.

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And that could certainly add some additional volatility this morning.

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Enjoy the rest of your day. Enjoy your weekend.

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Enjoy your extra hour of sleep this weekend.

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And next time you'll hear my voice is on Monday morning.

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