short selling

Article Index

How to Play a Heavily Shorted Market

The market-reversing "Magic Hand" appeared again Monday, just when it looked as though all was lost. Is this the bottom?

One thing is certain: There is a crucial support area from 2,590 to 2,630 on the S&P 500. On Monday it was stretched beyond the limit, when suddenly, out of nowhere came the Magic Hand.

In this instance, the bulls can thank the shorts again, because with liquidity tight and getting tighter, there's not enough intrinsic demand for stocks to mount a massive, lasting rally. But in a market that has become thin because prices have crossed the same range over and over, short covering can drive a fast rally – but only until the short covering exhausts itself. And those times are getting shorter.

Nevertheless, when the earth is in its final hours, with the core about to explode and obliterate the last remaining vestiges of life, there is one thing that you can count on.

The shorts will cover.

I remember the old saw of the ancient, white-haired, wise-men traders I sat with in customers' galleries at Walston & Company back in the late 1960s and early 1970s, when bear markets were the rule: "He who sells what isn't his'n, must buy it back or go to prison."

And short sellers have hair triggers. Once they see that support isn't breaking down, they pile in all at once to cover their positions. That also tends to pull in a few long-side buyers who have cash. They're in short supply now, however.

Ultimately, each of these short-covering rallies weakens the market because they deplete the demand that is coming from short covering. So, what about short interest today? Will it continue to drive rallies every time support is threatened?

Examining Primary Dealer and customer shorts gives us some obvious answers...

This "Uncooked" Data Proves It: Another Housing Crash Is Coming

The housing market is rolling over - and it will get worse as mortgage rates and house price inflation continue to rise.

Of course, you're not seeing or hearing about this out in the media... yet. That's because, initially, these events will make little difference to the now-booming U.S. economy. Housing stopped being a major economic driver after the last bubble collapsed. 

But make no mistake: It will matter, big time.

I've got some charts that will show you what it's going to look like this time, why it's happening, and most importantly, how you can make some money (think John Paulson or Michael Burry of "The Big Short" fame) when the brewing crisis explodes...

The Bears Are About to Get Slaughtered in These Stocks

Short Selling

One of our Chris Johnson's "10 Commandments of Trading" is that short sellers are usually a bull's best friend, and that's bad news for the bears, because they're about to have a rough ride. But we're set to make a killing...

One of our Chris Johnson's "10 Commandments of Trading" is that short sellers are usually a bull's best friend, and that's bad news for the bears, because they're about to have a rough ride. But we're set to make a killing...

The Short Sellers Are Set to Hand Us Another Two Big Winners

Breakout Stocks

Our Chris Johnson is here to tell you about a powerful and accurate technical indicator that confirms a breakout stock and the potential for high profits that short-sellers are set to hand over to you...

Our Chris Johnson is here to tell you about a powerful and accurate technical indicator that confirms a breakout stock and the potential for high profits that short-sellers are set to hand over to you...

The "Weirdest," Most Exciting Chart I've Seen in Four Years

Short interest

One of my favorite, most powerful tools that's been at the heart of my trading for more than 20 years is short interest.

In fact, I love it so much, I've written about it before, showing how I use it to help pick the best stocks for my Seismic Profits Alert subscribers.

Today, though, I want to approach short interest a little differently, because it's telling us something very important about this market that all traders need to know...

It's Official: 2017 Is the Worst Year Ever for Store Closings... Here's How to Profit

store closings

If you aren't a subscriber to my Zenith Trading Circle service, you might have missed some lucrative good news: Retail think tank Fung Global Retail & Technology reported U.S. retailers plan to shutter 6,700 retail locations this year. Credit Suisse says that figure handily beats the old record of 6,163 closings set in - big surprise - 2008.

"But wait," I can hear you ask, "2008 I get, but the economy's humming along now, so why the closings? And why are these closings good news?"

Well, I'll tell you.

As to the first question, these overleveraged, maladapted-for-the-21st-century retailers could screw up a free lunch; the U.S. economy could grow 'til the cows come home and they just couldn't handle their debts.

The retail sector as we once knew it is now teetering on the edge of absolute destruction, and there's nothing - and I mean nothing - anyone can do to save retail stocks. Diagnosis: TERMINAL.

Which brings me to your next question, of course. This is great news for well-positioned investors because Wall Street smells money - big piles of it - on the table... and it smells as irresistible and tasty as scratch-made chocolate chip cookies baking on a snowy afternoon.

Mmm... Hungry? Good. We're going to sneak into the kitchen while Wall Street's not looking and take a bunch of those rich, delicious cookies for ourselves.

We're going to make a lot of money.

And we won't have to own a single one of these clunkers to do it.

So let's go get some...