Is another stock-market squeeze on the cards? Sunday 7 March 2021
The regime model flipped to “Mind the Squeeze” on Thursday. This is very interesting given that we entered the year in the “Buy the Dip” regime before the “Amber Alert” gave early warning for the late-January wobble.
As the market recovered to further highs, the “Amber Alert” remained in force thus giving warning for the potential of further wobbles such as the latest one that began in mid-February.
During this latest decline, the model has now flipped first into “Buy the Dip” and now into “Mind the Squeeze” which warns of the risk of sharp squeezes to the upside.
I used weakness on Thursday and Friday to take defensive longs in several areas but with a tech bias. I even came close to buying TSLA…yikes!!! As described in the past, I think the market will get roasted this year, and companies like TSLA will take the brunt of the correction. However, we could still see TSLA > 1000 before that happens!
If you paid close attention to the first chart in the previous report (reproduced below) you will notice that FXI was mapped onto the 4 quadrant a.k.a “Mind the Flop” on the 12th and 1th of February. This is one of the inputs that led to the model issuing a “Amber Alert” and it is worth looking at some visuals of the historical tendencies of this market whenever it is flagged thus.
The Efficiency Test shows up a very interesting history. First, the culmination of the signal has coincided with numerous tops leading to 20% reversals or great. Secondly, 78% of the time the period 31–55 bars post-culmination has seen the greatest declines. The period of weakness has often lasted until 90 bars post.
So the question is, does China recover to a new high before a more violent flop, or is it already in the early stages of a larger decline? For example, a recovery could take place into April and then the old “Sell in May and go away” mantra takes over for 2021…
Lending support to the idea of some manner of recover into April/May is the close cousin EWH (Hong Kong) which also appeared in that same report.
It at first appears to be conflicting the message in FXI by being mapped onto the “Buy the Dip” quadrant, but as the Eff. Test below shows, that is not the case.
74% of the time, this signal in EWH has led to an average 2.8% rally from 2 trading sessions after culmination until 40 sessions post. The p-value is 0.5%.