U.S. Stocks posted 3% plus gains on Thursday. Before the open, China indicated it would be selling any European debt or Euros, and reports also indicated that economic growth in China remains very strong. I am not real sure that was the main reason for this rally though. Maybe part of the reason was that BP is encouraged by its efforts to plug the oil gusher in the Gulf. Certainly, the economic data out today did not support this strong of a move, since 1st quarter GDP was revised lower and initial jobless claims were still at the 460,000 level.
However, what I see is more of a short squeeze. After yesterday's trading, where the market opened higher and closed lower, you can bet that some short sellers added to positions. When the market opened substantially higher this morning, the shorts were caught with their pants down, and by the end of the day, it was a bloodbath for them. But, volume was very light, so investors did not make big bets today. In fact, the volume was about 60% of what it was last Friday when the market bounced off support.
With this in mind, we need more evidence that this is not just a case of a short squeeze. I will be surprised if we get it tomorrow due to the holiday. Maybe next week when the traders return from the Hamptons.
Scott Cole
Kungfutrader.com
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