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Short squeeze spills over to indices

NAS100 – 4 hour Candlesticks
Source: GKFX / MT4 (January 28, 2021)

NAS100 has pulled back sharply on Tuesday but held onto a rising trendline that has been in place since the beginning of November. Price respecting the trendline is a bullish sign whereas if the trendline breaks, it could usher in a new downtrend.
 

TAKEAWAYS


•    S&P 500 closes down 2.6% for worst day since October
•    USD/JPY pops above 104, EUR/USD dips under 1.20 as dollar gains after Fed meeting
•    Gold and silver dip but losses are limited amid flight to safety
•    Bitcoin falls under $30,000 again before rebounding back over
•    Tesla stock drops in afterhours trading following earnings
•    Facebook falls despite earnings beat after giving weak guidance on future earnings
•    AMC stock gains 300% in one day in ongoing Reddit short-squeeze
•    The IMF raised its global growth forecast
•    European Union in fight with AstraZeneca over its covid-19 vaccine supplies
•    DAY AHEAD: Germany CPI, US GDP, Samsung earnings
 

GURU WISDOM


“It takes a great deal of nerve to cling to a short position in a stock in the face of an advancing market even though the stock may clearly be overvalued.” - Philip Carret
 

MARKETS


*Daily closing price
↘ EUR/USD    1.2110        (-0.42%)
↘ GBP/USD    1.3685        (-0.35%)
↗ USD/JPY    103.77        (+0.47%)
↘ S&P 500    3750.77    (-2.57%)
↘ Hang Seng    29,297.53    (-0.32%)
↘ Gold        1844.20    (-0.33%)
↘ Oil (Brent)    55.28        (-1.13%)
↘ Bitcoin    30,653        (-5.74%)
 

NEWS

 

Stocks drop


US indices dropped sharply off record highs with the Nasdaq leading the losses aid concerns that stocks have been priced to perfection before earnings as well over rampant speculative trading from retail day traders. Some have surmised that hedge funds that have been forced to close their short trades will also close out long positions to manage risk and offset losses. Hedge funds are often long and short the market at the same time so a reduction in the size of short (selling) trades could be met with a reduction in long (buying) trades too.
 

Shorts covered


Several prominent short-sellers announced they had fully exited short positions in GameStop, AMC and several other high-flying stocks promoted in the wallstreetbets reddit group. The news didn’t stop the gains though, with AMC rising an eye-watering 300% on Tuesday alone. 
 

Tech earnings


Shares of Tesla dropped by more than 7% afterhours after the company uncharacteristically missed earnings estimates. Facebook topped estimates but the shares fell over a weak guidance. Apple handily beat estimates but the stock was little moved on the news in another sign the good news could have already been priced in.
 

DAY AHEAD 


*Times in GMT
13:00 – Germany Harmonized Index of Consumer Prices (YoY)(Jan) Prel [    0.5 % Exp vs. -0.7 % Prev]
13:30 - Initial Jobless Claims (Jan 22) [875 K Exp vs. 900 K]
13:30 – US Gross Domestic Product Annualized(Q4) Prel [3.9 % Exp vs. 33.4 % Prev]
 

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