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December 2017
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Stock market rally or short squeeze?

                From March to end of May the stock market experienced a bear market rally.  Yes, it wasn’t a real rally because the economy itself was in fact weakening at a significant rate.  We at Alphas Edge expected the rally to last to 8400 and then correct itself.  What we didn’t see coming was the nasty short squeeze that lasted another 3 months but is very close to an end.  From June to the end of August the market has been on a buy to cover mode pushing stocks higher.

                The evidence is all around us as even many of the typical bulls were warning of a possible profit taking that never materialized.  Let’s look at FNM for example a stock that was worth 60 cents a few months ago.  Last month, FNM had 55.17 million shares shorted, or 5% of the total potential float.  Less than 3 weeks later, it only has 156 thousand shares shorted, or about 0.14% of the float.  Than we have BAC, last month Bank of America had 92.63 million shares shorted, or 5.5% of the total potential float.  Less than 3 weeks later, it only has 229 thousand shares shorted, or about 0.13% of the float.  Lastly, let’s look at AIG, last month it had 24.64 million shares shorted, or 19% of the total potential float.  Less than 3 weeks later, it still had 24.15 million shares shorted, or about 18.7% of the float.  But the last month, the stock has skyrocket over 400%.  Let’s keep an eye on how many shares are still shorted next month.

                What the market will do the next month is wide open.  If you notice shorted positions accumulating, the big boys are starting to prepare for a correction.  However, if you continue to see the shorted positions unwinding, than the market will be heading higher.  Fact is that the fate of the equities (stocks) is not in the hands of the majority but in the minority.  If Goldman Sachs, Fed, and Government work together, they can push equities to 14,000 by deflating the US dollar another 20 to 30%.  If however they decide to strengthen the dollar by 10 to 20%, you can easily see the stock market drop to retest the lows again.

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